Blackrock CEO Larry Fink sees capitalism as the solution to humanity’s pressing problems.
Larry Fink is optimistic. Even very optimistic about the future of capitalism and the economy. This is what the head of Blackrock writes in his annual letter to the CEOs of large companies. Blackrock, with assets under management of almost 9000 billion euros, is the world’s largest investment bank. $ the largest asset manager in the world. At the beginning of each year, Fink sends a letter to the top managers of large companies to tell them and their stakeholders which issues are particularly important to Blackrock.
At first glance, a review of the past twelve months seems to offer little cause for confidence or optimism. Larry Fink addresses three problems in particular in his letter. First, the pandemic that has the world in its grip; second, inequality, which has risen again and is contributing to social polarization; and third, climate change, which is increasingly felt in Western industrialized countries as well.
These three problems are not independent of each other, they reinforce each other. "Low-income communities around the world are already suffering more from climate change than others," writes Larry Fink. His confidence in the future and his optimism are grounded in the trust that capitalism will prove to be the problem-solver that can return these threatening trends to sustainable trajectories.
Capitalism as a saving grace
He sees proof of capitalism as a solution to the pressing problems of mankind in the rapid development of a vaccine against the coronavirus. However, in view of the enormous economic damage and the unevenly distributed burdens, the way out of the pandemic needs companies that embrace a form of capitalism that serves all stakeholders.
However, only a capitalism that takes into account the problem of climate change can serve all stakeholders. This is then also the actual main point of the letter. Climate change will dramatically change lives – as the pandemic did. "To limit the global temperature rise to below 2 degrees Celsius, human-caused greenhouse gas emissions must decline by 8-10% annually to ‘net zero’ by 2050," writes Larry Fink. For this transition to a carbon-neutral economy to succeed, he said, not only technological innovations are needed, but also corporate planning for decades to come.
Blackrock holds due to its size in many enterprises a portion of 5% or more. Therefore, the financial giant is in a good position to influence listed companies to address climate-related challenges. Larry Fink writes that Blackrock is committed to pressing management for action to achieve net-zero greenhouse gas emissions by 2050 at the latest.
Mirjam Staub-Bisang, country head of Blackrock Switzerland, said: "On the one hand, we are asking companies to present a plan on how they will adapt their business model to a climate-neutral economy. On the other hand, we work with our clients who demand reliable information that allows them to make an informed assessment of the climate risks of their investments."
Blackrock wants to get involved with corporations
Blackrock wants to meet these client demands for transparency and consistent climate reporting, Larry Fink said in his letter. That’s why his company supports efforts to create a standardized reporting framework worldwide, he said. One would allow investors to make more informed investment decisions, especially from the perspective that climate risks were investment risks. The Blackrock boss doesn’t just see companies as having a responsibility in this regard. Government and quasi-government issuers should also disclose how they manage climate-related risks.
The Blackrock CEO also promises transparency regarding the adaptation of the business model to a climate-neutral economy for his own company, whose business operations are already CO2-neutral today. In addition, the U.S. company has apparently responded to one of the main criticisms of numerous experts. These had accused Blackrock and other large providers of passive products, such as Vanguard and State Street, of holding talks with management to initiate measures, but almost always behaving passively at shareholder meetings.
This has apparently changed. "In terms of shareholder proposals, since the second half of 2020, we have been focusing on a more active policy," says Mirjam Staub-Bisang. "Since then, we have supported 54% of all shareholder proposals on environmental and social issues."
Where optimism fails even Larry Fink
The multiple crises of the last year could not apparently break the optimism of Larry Fink. He has his eye on the opportunities of the future, less on the scars of the past. Clearly, the pandemic is not yet over, but various vaccines have been developed very quickly. Economies are still scarred by recent dislocations, but the future, as well as the transition to a carbon-neutral economy, offers significant business opportunities. And Blackrock, as an industry leader, is in an excellent position to take advantage of these opportunities.
There seems to be only one thing in Larry Fink’s letter that he is not quite as optimistic about as the other topics. In the Paris climate agreement is defined as a goal to do everything possible to limit the temperature rise to 1.5 degrees. But the Blackrock chief only ever addresses the less ambitious goal of keeping global warming below two degrees. If even super-optimist Larry Fink isn’t optimistic enough to mention the 1.5 degree target in his letter, one might almost suspect that the world won’t get away with a temperature rise well below 2 degrees.