Larry Fink (BlackRock Co-founder) – Capitol Markets, BlackRock, and Private Sector Action on Climate Change | Paulson Institute (Dec 2021)
Chapters
00:00:02 The Future of Investing in a Changing Climate
Larry Fink’s Investment Philosophy: Larry Fink, founder and CEO of BlackRock, emphasizes the importance of companies focusing on sustainability and moving forward. Companies that prioritize these aspects will attract more capital and outperformed their competitors in the market. Fink observes a widening gap between companies that are advancing in sustainability and those that are stagnating, reflected in their stock performance and multiples.
Climate Change and the Urgency for Action: Fink acknowledges the challenges in achieving a decarbonized world and the need for rapid investment in new technologies. He stresses that current efforts are insufficient to address the urgency of climate change, and breakthroughs are necessary to accelerate progress.
Larry Fink’s Early Interest in Business and Finance: Fink’s entrepreneurial spirit was evident from a young age, working at his father’s shoe store and selling reptiles to zoos and collectors. He recognized his inclination towards business and finance, despite his initial academic background in political theory. Fink’s educational journey led him to graduate school and eventually to Wall Street, where he found his passion in the financial industry.
00:03:50 Entrepreneurial Innovation and Climate Change Advocacy in Finance
Genesis of BlackRock: The idea for BlackRock emerged from Larry Fink’s experience at First Boston, where he faced failure due to inadequate risk assessment tools. He recognized the need for risk tools to analyze and manage investment risks effectively.
Founding Principles of BlackRock: Fink aimed to establish a company with reliable risk tools and a team of trustworthy partners. He prioritized forward-focused thinking, avoiding dwelling on past mistakes. Building trust with clients was a core objective.
Entrepreneurial Spirit in Wall Street: Fink’s entrepreneurial journey began in the 1970s and early 1980s when Wall Street experienced significant innovation. Back then, Wall Street operated more like a cottage industry, with smaller companies and a more entrepreneurial spirit.
The Role of Risk Management: Fink emphasized the importance of risk management, especially when innovative ideas take off and become large. His experience at First Boston shaped his approach to risk assessment and management at BlackRock.
BlackRock’s Contributions during the Financial Crisis: Fink’s understanding of market dynamics and his work with the New York Fed during the financial crisis proved valuable.
Focus on Climate Change: Fink and BlackRock have taken a leadership role in driving private sector action on climate change. His speech at the G20 in Italy and op-ed in the New York Times highlighted the need for rich countries to provide the private sector with tools to address climate challenges.
00:10:44 Financial Impact of Climate Risk and the Rise of Sustainable Investing
Origins of Larry Fink’s Environmentalism: Larry Fink, CEO of BlackRock, initially saw himself as a personal conservationist and environmentalist but faced a dilemma as a fiduciary to prioritize clients’ interests over his own. A series of personal experiences, including witnessing the bleaching of the Great Barrier Reef and the drying up of the Great Delta in Africa, led him to realize the urgency of climate change.
Climate Risk as Investment Risk: Fink observed a growing awareness among investors about climate risk and its potential impact on portfolios. He recognized the need to address climate risk as a fiduciary responsibility, especially for long-duration retirement assets.
BlackRock’s Response to Climate Risk: Fink wrote a letter to clients in January 2020 emphasizing that climate risk is investment risk. He pushed for more transparency and disclosure from companies on their climate-related risks and opportunities. BlackRock developed analytical tools to assess climate risk and quantify its impact on assets.
Sustainable Investment and Capital Reallocation: Fink believes that sustainable investing is a tectonic shift in finance, with $4 trillion of assets moving into sustainable strategies. Companies that fail to address climate risk face the risk of capital reallocation out of their stocks and underperformance compared to peers. He emphasizes the importance of stakeholder capitalism, focusing on employees, clients, communities, and shareholders.
Greenwashing and Pragmatic Approach: Fink acknowledges the challenge of greenwashing in the green finance space. He recognizes the need for more rigorous definitions and standards to prevent misleading claims of sustainability. Fink takes a pragmatic approach to climate action, balancing the need for urgent action with the realities of economic and political constraints.
00:23:26 Addressing Greenwashing and Advancing Decarbonization Efforts
Greenwashing and the Role of Hydrocarbon Companies: Larry Fink highlights the issue of greenwashing, particularly when hydrocarbon companies sell their dirtiest hydrocarbons to private equity firms, which does not contribute to achieving net zero goals. He proposes solutions such as creating good and bad banks for hydrocarbon companies, keeping them public, and using carbon credits to advance green initiatives.
The Importance of a Common Taxonomy: Fink emphasizes the need for a common taxonomy to judge companies’ sustainability efforts across different regions and industries. A common taxonomy would enable transparent and consistent reporting of climate-related information, reducing greenwashing.
BlackRock’s Approach to Sustainable Investing: BlackRock is developing its Aladdin system to become Aladdin climate, focusing on developing analytical tools to assess climate risk as an investment risk. This approach aims to provide fiduciaries with the necessary documentation and information to make informed and justifiable investment decisions related to climate risk.
Reimagining the World to Address Climate Change: Fink stresses the need to reimagine the world to address climate change effectively. He advocates for keeping hydrocarbon assets in public hands and vehicles to ensure transparency in their transition towards decarbonization.
The Role of Rich Countries in Decarbonization: Hank Paulson emphasizes the importance of rich countries providing the necessary tools and resources to the private sector, banks, and industries to decarbonize industrial processes. Updating the charters of multilateral development banks is crucial to support climate action.
The Consequences of Inaction by Rich Countries: Fink expresses concern that if rich countries do not step up and take necessary actions, it could lead to increased polarization between big and small companies, with public companies and banks being held responsible for climate action.
Global Decarbonization Efforts: Despite efforts, the current pace of decarbonization is insufficient to reach net-zero emissions. Emerging economies face significant challenges, requiring an estimated $30 trillion over 30 years for decarbonization. Current aid and investments fall short, highlighting the need for unity and long-term planning.
Geographical Disparities: The U.S. and Europe are progressing faster than other regions in decarbonization. This disparity could lead to geopolitical issues if only certain regions decarbonize.
Public-Private Collaboration: The success of vaccine development demonstrates the effectiveness of public-private partnerships. Climate change requires similar collaboration to drive technological breakthroughs and address foundational changes.
Role of International Financial Institutions: The World Bank and IMF need to adapt their mandates to facilitate emerging world decarbonization. Providing mezzanine or first loss financing can attract private capital.
Innovative Financing Models: Germany and France’s provision of first loss capital enables cheaper financing for sustainable investments. This model can be replicated to raise trillions of dollars for emerging economies.
Accelerating Progress: Collaborative efforts, long-term planning, and innovative financing are crucial for rapid decarbonization.
00:31:53 Opportunities and Challenges in Rewiring a Global Economy
Private Sector Leadership: The private sector has taken the lead in addressing climate change, setting an example for governments to follow. To accelerate progress, governments need to change the charters of multilateral development banks and provide the necessary tools for the private sector to invest in climate solutions.
Risk of Climate Finance Crash: Without government support, the private sector’s ambition to invest in climate solutions may be thwarted by a system unable to absorb it. This could lead to a “climate finance crash” and hinder the transition to a low-carbon economy.
Generational Opportunities: Rewiring the global economy away from fossil fuels presents significant generational opportunities. The transition to a decarbonized world will require massive investments, creating new technologies, industries, and jobs.
$130 Trillion Investment Commitment: Financial services companies have committed $130 trillion in investments over the next 30 years to support the transition to a low-carbon economy. This investment will create new opportunities, jobs, and economic growth in countries, cities, and states focused on climate action.
Conclusion: The private sector and governments must collaborate to address climate change and seize the generational opportunities it presents. By investing in climate solutions, we can create a more sustainable and prosperous future for all.
00:34:44 Long-Term Planning Needed for Carbon Sequestration and Sustainable Energy
Technological Advancements: Capturing carbon requires geological formations. New jobs and opportunities will arise in different locations due to carbon sequestration. Systematic planning is essential for transporting carbon from production sites to sequestration areas. Private sector opportunities in carbon capture and sequestration are significant.
Investment Potential: Retirement assets can benefit from long-term investments in carbon capture and sequestration. Nascent technologies for eliminating carbon have promising investment potential.
Consumer Preferences: Cows contribute significantly to the global carbon footprint. Changing consumer preferences, such as adopting synthetic or vegetarian meat, can impact carbon emissions.
Industrial Transformation: Shifting from carbon-reliant industries to sustainable alternatives is necessary. The transformation affects electricity generation, transportation, food production, and manufacturing. Technological advancements will drive new business models and disrupt existing industries.
Advice to Young Entrepreneurs: Pursue a career that aligns with personal passions and values. Success and fulfillment come from finding a role that resonates with one’s inner being.
00:38:53 Building a Sustainable Future Through Passion and Learning
Fink’s Advice to Young Professionals: Seek Passion: Larry Fink emphasizes the importance of choosing a career that aligns with one’s passion and purpose. He believes that those who are passionate about their work go much further than those who simply do it as a job. Continuous Learning: Fink stresses the need for continuous learning and growth throughout one’s career. He believes that once someone stops learning, they will fall behind.
Sustainability as a Transformative Opportunity: Bigger than Housing: Fink sees the opportunity related to sustainability as much larger than the opportunities he had when he started The Mortgage Desk. He believes it will transform the industrial complex of the world. Finance as a Key Driver: Fink highlights the role of finance in driving the change towards sustainability. He believes finance is the key to unlocking the necessary investments and transforming the world’s economies.
Collaboration and Optimism: Importance of Collaboration: Fink emphasizes the need for collaboration among governments, philanthropy, academia, and finance to address sustainability challenges. He believes that by working together, breakthrough technologies can be developed to reduce the threat of carbon on the world. Optimistic Outlook: Fink expresses optimism that by putting minds together and working collectively, a grim outcome can be avoided. He draws parallels to the success of government policy, monetary policy, and fiscal stimulus in addressing the COVID-19 pandemic.
Learning and Intellectual Curiosity: Lifelong Learning: Fink and Paulson both stress the importance of lifelong learning and intellectual curiosity. They believe that continuous learning is essential for career success and personal growth. Choosing a Career of Interest: Fink advises young professionals to choose a career that genuinely interests them, as it fuels their thirst for learning and growth.
Conclusion: Fink and Paulson call for action to address the global sustainability crisis, emphasizing the need for collaboration and optimism. They believe that by harnessing the power of finance and combining it with the efforts of various sectors, a positive transformation can be achieved.
Abstract
“Navigating the Future: Larry Fink’s Vision for Sustainable Finance and Climate Action”
In this comprehensive examination, we delve into the remarkable journey of Larry Fink, CEO of BlackRock, the world’s largest asset management firm with a staggering $9 trillion under management. Fink’s career, starting from early experiences in sales and entrepreneurship, has been marked by his foresight in recognizing the pivotal role of sustainability and environmental, social, and governance (ESG) factors in business. His personal transformation, driven by firsthand observations of climate change’s devastating effects, has positioned BlackRock as a leader in sustainable investing. This article discusses Fink’s influence on climate action and finance, his unique perspectives on the challenges of decarbonization, and his guidance for future entrepreneurs, emphasizing the necessity of passion, continuous learning, and the role of finance in driving sustainability.
Larry Fink, founder and CEO of BlackRock, emphasizes the importance of companies focusing on sustainability and moving forward. Companies that prioritize these aspects will attract more capital and outperformed their competitors in the market. Fink observes a widening gap between companies that are advancing in sustainability and those that are stagnating, reflected in their stock performance and multiples.
Larry Fink’s Formative Years and Entry into Finance:
Larry Fink’s entrepreneurial spirit was evident from a young age, working at his father’s shoe store and selling reptiles to zoos and collectors. He recognized his inclination towards business and finance, despite his initial academic background in political theory. Fink’s educational journey led him to graduate school and eventually to Wall Street, where he found his passion in the financial industry.
BlackRock’s Genesis and Ethos:
The idea for BlackRock emerged from Larry Fink’s experience at First Boston, where he faced failure due to inadequate risk assessment tools. He recognized the need for risk tools to analyze and manage investment risks effectively. Fink aimed to establish a company with reliable risk tools and a team of trustworthy partners. He prioritized forward-focused thinking, avoiding dwelling on past mistakes. Building trust with clients was a core objective.
Personal Transformation and Climate Risk Awareness:
Larry Fink, CEO of BlackRock, initially saw himself as a personal conservationist and environmentalist but faced a dilemma as a fiduciary to prioritize clients’ interests over his own. A series of personal experiences, including witnessing the bleaching of the Great Barrier Reef and the drying up of the Great Delta in Africa, led him to realize the urgency of climate change.
Tackling Greenwashing and Advocating for Transparency:
Fink acknowledges the challenge of greenwashing in the green finance space. He recognizes the need for more rigorous definitions and standards to prevent misleading claims of sustainability. Fink takes a pragmatic approach to climate action, balancing the need for urgent action with the realities of economic and political constraints.
The Hydrocarbon Dilemma and Decarbonization:
Fink argues against the divestment of hydrocarbon assets from public companies, advocating for their transparent management. He emphasizes that current efforts are insufficient to address the urgency of climate change, and breakthroughs are necessary to accelerate progress. He recognizes the challenges in achieving a decarbonized world and the need for rapid investment in new technologies.
Public-Private Collaboration and Financial Innovation:
Fink and BlackRock have taken a leadership role in driving private sector action on climate change. His speech at the G20 in Italy and op-ed in the New York Times highlighted the need for rich countries to provide the private sector with tools to address climate challenges.
Carbon Sequestration and Investment Opportunities:
Fink believes that sustainable investing is a tectonic shift in finance, with $4 trillion of assets moving into sustainable strategies. Companies that fail to address climate risk face the risk of capital reallocation out of their stocks and underperformance compared to peers. He emphasizes the importance of stakeholder capitalism, focusing on employees, clients, communities, and shareholders.
Perspectives from Hank Paulson and Larry Fink on Industrial Transformation:
Both Fink and Paulson recognize the need for fundamental shifts across industries, from energy to manufacturing, driven by technological advances and consumer preferences. They believe that the transition away from fossil fuels offers generational investment and job opportunities.
Larry Fink’s Advice for Aspiring Entrepreneurs:
Fink emphasizes the importance of finding passion in one’s career, continually learning, and adapting to change. He advocates for cross-sector collaboration to tackle sustainability challenges, underscoring the finance sector’s critical role.
Larry Fink’s journey from a young entrepreneur to a global leader in finance and sustainability underscores the profound impact of vision, adaptability, and a commitment to sustainable practices in business. His emphasis on transparency, pragmatic approaches to greenwashing, and the need for innovative financing models highlight the complexity and necessity of addressing climate change. As Fink and other thought leaders like Hank Paulson suggest, the path to a sustainable future lies in harnessing the collective power of the private sector, government support, and individual passion and curiosity. The lessons from Fink’s career offer valuable insights for future leaders and entrepreneurs navigating the challenges and opportunities of a rapidly changing world.
Supplemental Updates:
Greenwashing and the Role of Hydrocarbon Companies:
Larry Fink highlights the issue of greenwashing, particularly when hydrocarbon companies sell their dirtiest hydrocarbons to private equity firms, which does not contribute to achieving net zero goals. He proposes solutions such as creating good and bad banks for hydrocarbon companies, keeping them public, and using carbon credits to advance green initiatives.
The Importance of a Common Taxonomy:
Fink emphasizes the need for a common taxonomy to judge companies’ sustainability efforts across different regions and industries. A common taxonomy would enable transparent and consistent reporting of climate-related information, reducing greenwashing.
BlackRock’s Approach to Sustainable Investing:
BlackRock is developing its Aladdin system to become Aladdin climate, focusing on developing analytical tools to assess climate risk as an investment risk. This approach aims to provide fiduciaries with the necessary documentation and information to make informed and justifiable investment decisions related to climate risk.
Reimagining the World to Address Climate Change:
Fink stresses the need to reimagine the world to address climate change effectively. He advocates for keeping hydrocarbon assets in public hands and vehicles to ensure transparency in their transition towards decarbonization.
The Role of Rich Countries in Decarbonization:
Hank Paulson emphasizes the importance of rich countries providing the necessary tools and resources to the private sector, banks, and industries to decarbonize industrial processes. Updating the charters of multilateral development banks is crucial to support climate action.
Collaborative Efforts and Long-Term Planning for Decarbonization:
Despite efforts, the current pace of decarbonization is insufficient to reach net-zero emissions. Emerging economies face significant challenges, requiring an estimated $30 trillion over 30 years for decarbonization. Current aid and investments fall short, highlighting the need for unity and long-term planning.
Geographical Disparities:
The U.S. and Europe are progressing faster than other regions in decarbonization. This disparity could lead to geopolitical issues if only certain regions decarbonize.
Public-Private Collaboration:
The success of vaccine development demonstrates the effectiveness of public-private partnerships. Climate change requires similar collaboration to drive technological breakthroughs and address foundational changes.
Role of International Financial Institutions:
The World Bank and IMF need to adapt their mandates to facilitate emerging world decarbonization. Providing mezzanine or first loss financing can attract private capital.
Innovative Financing Models:
Germany and France’s provision of first loss capital enables cheaper financing for sustainable investments. This model can be replicated to raise trillions of dollars for emerging economies.
Accelerating Progress:
Collaborative efforts, long-term planning, and innovative financing are crucial for rapid decarbonization.
Hank Paulson and Larry Fink’s Discussion on Climate Finance:
The private sector has taken the lead in addressing climate change, setting an example for governments to follow. To accelerate progress, governments need to change the charters of multilateral development banks and provide the necessary tools for the private sector to invest in climate solutions.
Risk of Climate Finance Crash:
Without government support, the private sector’s ambition to invest in climate solutions may be thwarted by a system unable to absorb it. This could lead to a “climate finance crash” and hinder the transition to a low-carbon economy.
Generational Opportunities:
Rewiring the global economy away from fossil fuels presents significant generational opportunities. The transition to a decarbonized world will require massive investments, creating new technologies, industries, and jobs.
$130 Trillion Investment Commitment:
Financial services companies have committed $130 trillion in investments over the next 30 years to support the transition to a low-carbon economy. This investment will create new opportunities, jobs, and economic growth in countries, cities, and states focused on climate action.
The private sector and governments must collaborate to address climate change and seize the generational opportunities it presents. By investing in climate solutions, we can create a more sustainable and prosperous future for all.
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