ESG Trend - Decoding the Annual Letter from Larry Fink

Picture from BlackRock

In the annual letter Larry Fink sent last year, he talked about awareness of the long-term value in climate change is rapidly changing, and that we are on the edge of a fundamental reshaping of finance. Shortly after that, the pandemic has done more than marking history, it has both exacted a horrific human toll and transformed the way we live – the way we work, learn, access medicine, and much more as Fink put it.

The annual letter from Black Rock has been released for this year by its CEO Larry Fink addressing to CEOs. Like the ones in the past, to highlight issues that are pivotal to creating durable value – issues such as capital management, long-term strategy, purpose, and climate change. Creating enduring, sustainable value for stakeholders is the key message Mr. Fink is trying to send. This time more than ever.

Fink has also highlighted the accelerated deeper trends, from the growing retirement crisis to systemic inequalities. He pointed out in his letter that direct financial impact from shifting stranded climate-related assets by energy companies and regulation in addressing climate risk in the global financial system has begun to add market risk among the physical toll of climate changes. Trends are surfacing on growing focus on the significant economic opportunity that the transition will create, and how to execute it in a just and fair manner.

In Fink’s letter, he noticed the shift in the fundamental reallocation of capital by investors to avoid the climate risk within the value of securities and this even accelerated after the pandemic. According to the data published by BlackRock:

From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. Fink believes that this is the beginning of a long but rapid accelerating transition – one that will unfold over many years and reshape asset prices of every type.

Key trends he summarised in the annual letter are as followed:

  • Essential to this transition has been the growing availability and affordability of sustainable investment options. The creation of sustainable index investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.

  • Better technology and data are enabling asset managers to offer customized index portfolios to a much broader group of people – another capability once reserved for the largest investors.

  • Increasing Net Zero commitments by policymakers in the EU, China, Japan, and South Korea, in addition to the U.S. rejoin the Paris Agreement, marking 127 governments responsible for more than 60% of global emissions – are considering or already implementing commitments to net zero.

The Opportunity of the Net Zero Transition

There is no company whose business model won’t be profoundly affected by the transition to a net-zero economy. A successful transition – one that is just, equitable, and protects people’s livelihoods – will require both technological innovation and planning over decades. And it can only be accomplished with leadership, coordination, and support at every level of government, working in partnership with the private sector to maximize prosperity. Asset managers are in their best interest to meet the growing demand from investors for accelerating data and analysis capabilities in helping them better understand each and every stock’s exposure to climate change and the global shift to net zero.

Data and disclosure matter in building consistent, high-quality, and material public information for reporting a broader set of material sustainability factors.

Fink states that BlackRock is strongly supporting moving to a single global standard, which will enable investors to make more informed decisions about how to achieve durable long-term returns. He urges more companies, public and private and even public debts in their as well as investors’ own interests should be working on better disclosing their sustainability.

In addition to measurement and disclosure, Fink suggests that Governments around the world, under severe financial strain from the pandemic, also need to undertake massive climate infrastructure projects, both to protect against physical risk and to deliver clean energy. These challenges will require the creative public-private partnership to finance them, as well as better disclosures to attract capital.

BlackRock has also been shifting its role from committing to Net-Zero to boost and support the net-zero GHG goal by 2025.

BlackRock’s commitment, as stated by Larry Fink, is that they are carbon neutral today in operations and are committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner.

As a giant in the financial world, BlackRock has a bigger to play in supporting Net-Zero, as published by Larry Fink’s annual letter:

In Fink’s letter, he believes that by embracing the demands of greater transparency, greater accountability to stakeholders and better preparation for climate change, businesses have the ability of businesses to help move us out of this crisis and build more inclusive capitalism and move even faster by taking these challenges seriously and showing greater courage and commitment to their stakeholders.

To read more:

Larry Fink's 2021 letter to CEOs | by Larry Fink | 2021

(Written by Yitong Yuan)

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