Larry Fink (BlackRock) (Apr 2021)

Larry Fink (BlackRock Co-founder) – Bloomberg Green Summit (Apr 2021)

Chapters

00:00:00 Assessing BlackRock's Progress on Climate Change Initiatives

Progress to Date:
* BlackRock has witnessed a significant shift in client dialogues, with more clients seeking sustainable portfolio designs and investments in various sectors.
* Clients are increasingly looking to incorporate sustainability across their entire portfolios, including those with business liabilities.
* BlackRock utilizes analytics and data to select the best companies within each industry, aiming to create portfolios with improved ESG and sustainability metrics.
* The firm has observed a dramatic change in stewardship conversations with corporations regarding their transition to sustainable practices.

Challenges and Opportunities:
* BlackRock acknowledges that the capital markets are moving rapidly towards sustainability, but there is still a long way to go in terms of client portfolios being managed through a sustainability lens.
* The firm emphasizes the need for more data and reporting under SASB and TCFD to better understand corporate progress in sustainability.
* Erik sees the potential for all investments to be viewed through a sustainability lens in the future, but it will take time and collective action.

Metaphor of the Pandemic:
* Erik draws a parallel between the COVID-19 pandemic and the current state of sustainability.
* He emphasizes the urgency of addressing Earth’s deteriorating health and the need to change the course of carbon emissions to stabilize global health.
* Erik expresses optimism in the brilliance of technology and humanity to find solutions and rapidly change the direction of the Earth’s health.

Importance of Collective Action:
* Erik stresses that addressing climate change and sustainability cannot solely rely on public companies and asset managers.
* He calls for deliberate planning, investments, and changes in behaviors across all society, including governments and individuals.
* Erik highlights the ambitious goal set by President Biden to cut U.S. greenhouse gas emissions in half by the end of the decade.
* He emphasizes the need for investment in bringing down the green premium of new technologies to make them more accessible and affordable.

00:09:12 Innovative Approaches to Achieve Sustainable Energy Transition

00:12:47 Investment Opportunities and Challenges in Sustainable Energy

00:17:00 Overcoming Challenges in Climate-related Disclosure and Regulation

Harmonization of Climate Disclosures:
Erik advocates for a unified global taxonomy and measurement system for climate risk disclosure. He emphasizes the need to prevent arbitrage between different jurisdictions and ensure a level playing field. Governments are urged to collaborate at COP26 to harmonize disclosure standards.

Public-Private Disparity and the Risk of Private Companies Going Private:
Erik warns against placing a disproportionate burden of climate disclosure on public companies. He fears that this could lead to companies going private to avoid scrutiny, hindering progress towards net zero goals. Encouraging all companies, both public and private, to engage in climate disclosure is crucial.

SEC’s Role in Regulating Private Equity and Investment Companies:
Erik highlights the SEC’s authority over private equity firms and investment companies above a certain asset threshold. He suggests that the SEC could extend disclosure requirements to these entities, promoting more comprehensive reporting.

Challenges in Supply Chain Disclosures:
Erik acknowledges the difficulty of obtaining accurate and consistent climate data from supply chains, especially when suppliers are lagging in their own reporting efforts. He emphasizes the need for holistic approaches that involve all stakeholders, not just public companies.

Safe Harbor and Measurement Concerns:
Erik emphasizes the importance of establishing a safe harbor provision to protect companies from class action lawsuits related to climate disclosure errors. He stresses the need for a quantifiable taxonomy that governments can agree upon to ensure accurate and reliable reporting.

BlackRock’s ESG Shareholder Resolution Record:
Larry questions BlackRock’s record on supporting ESG shareholder resolutions, citing a study that found BlackRock’s support rate was significantly lower than the average among the 50 largest fund families. Erik disputes the study’s findings, arguing that it fails to account for the large number of companies and sustainability issues BlackRock reviews each year.

00:23:53 CEOs' Role in Promoting Societal Change

00:27:40 The Importance of Stakeholder Capitalism for Long-term Profitability

Abstract

Navigating the Future: BlackRock’s Strategic Approach to Sustainable Investing and Societal Change

In an era where sustainable investing is rapidly gaining traction, BlackRock’s Erik F. Schroeder offers insightful perspectives on the evolving landscape. From recognizing the urgency of climate change and the need for substantial investments in green technologies to addressing challenges in data and measurement, Schroeder underscores the importance of long-term planning and collaboration. Balancing this with a corporate responsibility towards societal change, BlackRock’s CEO Erik Fielstad advocates for stakeholder capitalism and the role of CEOs in influencing societal issues. This comprehensive analysis delves into the complexities and potential of sustainable investing, technological advancements, government roles, and corporate stewardship in driving significant change.

1. The Surge in Sustainable Investing:

Schroeder acknowledges a notable shift in client interest towards sustainable investing. Clients seek guidance on sustainable portfolio design across various sectors, including business liabilities, indicating a departure from traditional investment strategies. This trend emphasizes the growing significance of value-based sustainable portfolios.

2. Data and Measurement Challenges:

The lack of comprehensive data and standardized metrics for measuring corporate sustainability performance presents a significant hurdle. Schroeder stresses the importance of using frameworks like SASB and TCFD to enhance data comparability and availability, highlighting the need for more transparent and consistent reporting practices.

3. The Rapid Pace of Change:

Schroeder points out the unprecedented speed of change in sustainability narratives and portfolio adjustments. He emphasizes the necessity of long-term planning and broad collaboration, involving governments, corporations, and individuals, to facilitate a meaningful transition towards sustainable practices.

4. Pandemic Lessons for Sustainability:

Drawing parallels between the COVID-19 pandemic and climate change, Schroeder underlines the immediate action required to address environmental issues. The pandemic serves as a metaphor, spotlighting the urgent need to stabilize global ecosystems and reduce carbon emissions.

5. Technological Optimism and Investment Imperatives:

Expressing optimism in technology and human ingenuity, Schroeder emphasizes the crucial need for significant investments in sustainable technologies. He argues that a collective effort, beyond just public companies, is essential to diminish the “green premium” of emerging sustainable solutions.

6. Government’s Pivotal Role:

The U.S. government’s involvement, especially under President Biden’s climate agenda, is vital in accelerating the transition to sustainable energy. Policies promoting sustainable technology adoption and reducing costs are crucial for achieving the ambitious goal of halving greenhouse gas emissions by 2030.

7. Challenges and Opportunities:

The current lack of investment opportunities in sustainability in the U.S. is a challenge. The returns on solar and wind investments are currently modest, limiting private sector involvement. However, biofuels, a promising alternative energy source, face challenges in achieving cost-competitiveness. Moreover, the potential for new technologies, especially in carbon-intensive industries, creates opportunities for business and investment growth.

8. Investor Interest in Biofuel and Government Collaboration:

Investor interest in establishing a biofuel facility in the Northeast is significant, but it faces challenges in expediting the permitting process. This situation underscores the need for effective collaboration among local, state, and federal governments. Private capital is ready for investment, but projects and permitting are lacking. To complete the project in less than nine years, government agencies need to collaborate to accelerate the permitting process.

9. Fiscal Strategies and Tax Considerations:

The anticipated significant government spending on various initiatives, including sustainable projects, raises questions about fiscal strategies. Erik suggests exploring public-private partnerships, while also expressing concerns about the implications of a potential capital gains tax increase.

10. BlackRock’s Tax Preparedness and Investment Risks:

BlackRock prepares for anticipated tax increases, expecting minimal impact on client behaviors. The firm recognizes climate risks as investment risks, advocating for comprehensive risk disclosure.

11. Regulatory Dynamics and Disclosure Standards:

The EU’s regulatory requirements for climate risk disclosure and the SEC’s potential extension of these requirements underline the importance of harmonized standards. This harmonization is crucial for creating a level playing field and addressing the challenges in Scope 3 emissions reporting.

12. Harmonization of Climate Disclosures and Encouraging Broader Action:

Erik advocates for a unified global taxonomy and measurement system for climate risk disclosure to prevent arbitrage and ensure a level playing field. He urges governments to collaborate at COP26 to harmonize disclosure standards. Erik warns against placing a disproportionate burden of climate disclosure on public companies, as it could lead to companies going private to avoid scrutiny. Encouraging all companies, both public and private, to engage in climate disclosure is crucial. Erik highlights the SEC’s authority over private equity firms and investment companies above a certain asset threshold and suggests extending disclosure requirements to these entities. He emphasizes the difficulty of obtaining accurate and consistent climate data from supply chains and the need for holistic approaches involving all stakeholders. Erik stresses the importance of establishing a safe harbor provision to protect companies from class action lawsuits related to climate disclosure errors and the need for a quantifiable taxonomy that governments can agree upon to ensure accurate and reliable reporting.

13. Legal Concerns and Shareholder Resolutions:

The possibility of class-action lawsuits due to evolving taxonomies and inaccurate measurements concerns companies. Meanwhile, BlackRock’s response to ESG shareholder resolutions reflects its commitment to addressing sustainability issues across its vast portfolio.

14. Corporate Stewardship and Engagement:

BlackRock’s extensive corporate stewardship team plays a crucial role in engaging with companies on sustainability issues. The firm’s commitment to long-term engagement and consideration of all stakeholders is evident in its approach to corporate governance.

15. CEO’s Role in Societal Change:

Fielstad’s perspective on CEOs’ responsibility to address societal issues aligns with BlackRock’s principles. He advocates for a balance between profit maximization and societal impact, emphasizing the interconnectivity of American democracy and capitalism.

16. The Concept of Stakeholder Capitalism:

Stakeholder capitalism, where companies prioritize the interests of various stakeholders, is advocated as a path to durable profitability. Companies with strong principles in this regard tend to outperform their counterparts.

17. Employee Expectations and Company Responsibility:

Employees increasingly hold companies accountable for their social and environmental impact, pushing organizations like BlackRock to take a stand on important issues. This reflects the growing responsibility of asset managers.

18. The Role of CEOs in Society and BlackRock’s Stewardship Efforts:

Erik’s perspective on BlackRock’s stewardship efforts emphasizes the company’s engagement with more companies than any other, the increase in sustainability issues on proxies, and the commitment to long-term capital. Erik responds to criticism on CEOs’ role in societal change, asserting that CEOs have a responsibility to speak out on issues impacting clients and society and that BlackRock’s stakeholder capitalism approach resonates with its stakeholders.

19. Stakeholder Capitalism and Long-Term Profitability:

Erik’s advocacy for clients, employees, the community, and shareholders is a key principle of BlackRock, leading to strong and durable profitability. Employees’ desire for a vocal leadership on important issues highlights the responsibility of asset management companies. The company’s focus on long-term profits, considering the needs of clients, employees, and the community, has resulted in significant growth over the past 20 years.

Notes by: MythicNeutron

Larry Fink (BlackRock Co-founder) – Bloomberg Green Summit (Apr 2021)

Chapters

Abstract

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