Larry Fink (BlackRock Co-founder) – Qatar Economic Forum (Jun 2021)

Chapters

Abstract

The Critical Role of ESG in Reshaping Global Finance and Sustainability

In a rapidly evolving financial landscape, key industry leaders like Henry Fernandez of MSCI, Larry Fink of BlackRock, and Bill Winters of Standard Chartered have emphasized the urgent need for enhanced ESG (Environmental, Social, and Governance) measurement, disclosure, and integration. The transition to net-zero emissions, the crucial involvement of multinational corporations and governments, the challenges and opportunities in emerging markets like China, and the transformative potential of digital currencies and sustainable investing strategies are focal points in this significant shift towards a sustainable future.

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Emphasizing Measurement and Disclosure

Henry Fernandez highlights the importance of improving the measurement of ESG factors, focusing particularly on climate change data. However, only about one-third of companies in the MSCI All-Country World Index have reported net-zero pledges, signaling a need for accelerated action. The SEC is considering new ESG disclosure rules to enhance transparency and comparability. These measurement tools are critical for facilitating the reallocation and repricing of assets. Companies lacking credible sustainability efforts may face diminished opportunities for access to finance, capital markets, and customers.

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Reshaping Finance Through Sustainable Strategies

Larry Fink notes the rapid shift towards sustainable strategies in capital markets, driven by investor demand and climate risk recognition. The ExxonMobil vote serves as a significant indicator of changing investor sentiment, urging substantial decarbonization actions. The capital markets are moving faster than most of society in adopting sustainable strategies, and publicly traded companies, which contribute significantly to carbon emissions, must decarbonize. Investors increasingly demand sustainable strategies and recognize climate risk as an investment risk.

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Addressing Accountability and Greenwashing

Fink emphasizes the importance of collective net-zero emission efforts, involving not just public companies but also governments and consumers. The focus is shifting from debates over portfolio composition to broader engagement for a sustainable economy transition. Accountability is key, but discussions on the composition of ETFs or portfolios can be divisive. The ExxonMobil vote exemplifies the rapid and extensive changes in the investment landscape. Achieving a net-zero world necessitates collaboration beyond public companies, requiring support from both public and private sectors and governments to drive systemic change towards sustainability.

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The Tectonic Shift Towards Sustainable Investing

The transition of public companies towards sustainability is essential but not sufficient for achieving net zero. Cross-sector collaboration and a broader focus on sectors like agriculture and steel are critical. Sustainable investments require quantifiable data and alignment with liability indices for democratization. Public companies are actively moving towards a net-zero world, outpacing most governments and society. The focus should not be solely on divesting from public companies but on fostering transparency and monitoring their progress towards decarbonization. Collaboration between governments, the private sector, and society is key for achieving net-zero goals. 85% of MNCs plan to differentiate between suppliers based on their sustainability paths, with 15% already exiting suppliers not making necessary sustainability efforts.

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Overcoming Challenges in Emissions Measurement and Reduction

Standard Chartered Bank acknowledges that most of its emissions are client-related, posing a significant challenge. The bank grapples with issues in data quality and emissions allocation taxonomy, especially in developing countries. Attention must be given to decarbonizing all sectors, not just electricity and cars. Green cement, green agriculture, green hydrogen, and steel are crucial areas requiring investment and innovation. Decarbonization demands a comprehensive approach addressing the entire economy.

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Collaboration and Financing for Net Zero Transition

Collaboration among sectors is essential to address the financing gap in less developed countries. Standard Chartered’s commitment to supporting clients in their net-zero transition plans marks a positive step forward. Collaboration beyond public companies is necessary, with both public and private companies needing government support to drive systemic change towards sustainability. Standard Chartered Bank emphasizes the need for a clear baseline and data transparency in measuring and reducing emissions. Multinational corporations face challenges in decarbonizing their supply chains, especially in developing countries.

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The Role of Governments and Capital Markets

Both the public and private sectors play integral roles in achieving net zero emissions. Capital markets are critical in driving change by reallocating and repricing assets to encourage decarbonization. Publicly traded companies, which contribute significantly to carbon emissions, need to decarbonize. Governments should collaborate to accelerate progress towards net zero.

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Strategies to Persuade Companies to Decarbonize

Engine One’s challenge of ExxonMobil’s board highlights the rising power of activist investors. BlackRock focuses on engaging companies for sustainable practices, governance, and social responsibility. The importance of engagement and persuasion in driving change within companies is paramount. BlackRock engages with companies through its corporate stewardship team, aiming to influence and encourage companies to take action on sustainability issues. Fink underscores the success of Engine One in influencing Exxon’s board of directors, demonstrating the power of persuasive arguments and activism. The focus is on moving companies forward through engagement and collaboration, rather than relying solely on binary decisions during proxy votes. Companies need to adopt credible sustainability paths as access to finance, capital markets, and customers is drying up for entities without one.

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The Importance of Ongoing Engagement

BlackRock underscores the importance of continuous engagement with companies for sustainable progress. This engagement is vital for driving broader positive outcomes in the corporate world. The focus on collective action rather than individual companies is essential. Fink emphasizes the need to focus on collective action and engagement with numerous companies rather than concentrating solely on a few high-profile cases. BlackRock engages with thousands of companies annually, emphasizing engagement and collaboration over proxy votes. The goal is to move companies forward through engagement and dialogue, rather than relying solely on binary decisions during proxy votes.

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China’s Role in Global Capital Markets

BlackRock’s unique position in China enables engagement with Chinese companies on ESG factors. The firm’s approach includes assessing human rights activities of Chinese companies, akin to its global practices. China’s upcoming national carbon market and BlackRock’s engagement signify a move towards sustainable practices. BlackRock is the only international firm with both licenses in China. The firm focuses on judging companies, not governments, and maintains a non-political stance. BlackRock emphasizes its role in helping Chinese build sufficient retirement savings. The firm judges Chinese companies on their human rights activities similarly to European and American companies. BlackRock aims to engage with Chinese companies on E, S, and G factors as they go public on various exchanges.

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The Impact of the Transition to Net Zero

Companies and countries are increasingly pressured to adopt credible sustainability paths. Research indicates a trend towards differentiating suppliers based on sustainability efforts. Fink highlights the importance of looking beyond binary decisions and proxy votes in addressing sustainability issues. BlackRock’s approach involves continuous engagement with companies to drive progress and promote positive change. The focus is on moving companies forward through engagement and collaboration, rather than relying solely on binary decisions during proxy votes.

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China’s Carbon Market and Global Engagement

China’s upcoming national carbon market and BlackRock’s engagement signify a move towards sustainable practices. China is launching its own carbon market with provincial-level carbon exchanges that will eventually be rolled up into a nationwide exchange. This carbon market is designed to facilitate carbon trading and reduce carbon emissions.

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The Voluntary Carbon Market and Its Benefits

A global task force aims to create a credible voluntary carbon market. This initiative seeks to enhance transparency in carbon pricing and channel funding towards reducing carbon emissions. A voluntary carbon market is being established to improve transparency, carbon pricing, and channeling funds for carbon reduction. A consultation paper

has closed, with the final report coming on July 8th. The voluntary carbon market is expected to be up and running soon after.

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MSCI’s Approach to ESG and Cryptocurrency

MSCI integrates a climate change filter into all activities, including cryptocurrency evaluations. The Securities Commission in emerging markets, especially China, emphasizes adopting ESG principles for global competitiveness. MSCI applies a climate change filter to all aspects of its operations. Cryptocurrency is evaluated through climate change risk models. Exploring different approaches to cryptocurrency, including an index with sustainability criteria.

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Challenges in Cryptocurrency and ESG Evaluation

The environmental impact of Bitcoin mining poses a significant challenge for ESG-focused investors. MSCI’s approach balances innovation with responsibility, focusing on promoting sustainable practices while embracing new technologies.

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ESG Considerations in Emerging Markets

The Securities Commission in emerging markets, especially China, emphasizes adopting ESG principles for global competitiveness. Fink discusses the potential game-changing impact of government-issued digital currencies. Caroline Hyde emphasizes purposeful investing, integrating ESG factors for environmental sustainability and responsible business practices. The collective insights and efforts of industry leaders contribute to responsible investing practices, driving a more sustainable and inclusive global economy.

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In conclusion, the journey towards a sustainable and inclusive financial future hinges on the collective actions of companies, governments, and individuals. The role of ESG in guiding investment decisions, the challenges posed by emerging technologies and markets, and the necessity for transparent and effective collaboration across all sectors are pivotal in shaping a more responsible and resilient global economy.

Notes by: Random Access