A letter from Blackrock CEO clearly shows that sustainable finance is the talk of the town. But he – and the rest of the financial sector – still need to back words with action.
At the beginning of 2018, BlackRock CEO Larry Fink sent his annual letter to the CEOs of companies in which BlackRock invests. In the letter with the telling title ‘A Sense of Purpose’, he urged them to abandon short-term, profit-oriented thinking, and to take clear leadership in making the world a better place.
“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society… Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders,” Larry Fink wrote.
“The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own.” – Larry Fink
Larry Fink is a major heavyweight within the financial sector. As the CEO of Blackrock he holds responsibility for $6 trillion assets – and when a CEO of that caliber wants to do things differently – the sector listens.
Some of the key takeaways in term of sustainable finance he set forth in the letter were:
Growing expectations from the public:
“Public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate”.
A new shareholder model:
“The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own. I have written before that companies have been too focused on quarterly results; similarly, shareholder engagement has been too focused on annual meetings and proxy votes. If engagement is to be meaningful and productive – if we collectively are going to focus on benefiting shareholders instead of wasting time and money in proxy fights – then engagement needs to be a year-round conversation about improving long-term value”.
Long-term is key:
“In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth. I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors”.
Larry Fink is not the only CEO claiming to move in a more sustainable direction. Other big asset managers such as Vanguard and State Street have been very vocal in their support of climate investments and continue to pressure companies for better climate-risk disclosure.
No doubt that the letter from Larry Fink and the messages from other big financial actors are important and get attention. But the question is still whether or not, they will be backed by by real – and necessary action.
You can read the entire letter from Larry Fink here