Larry Fink’s View on the Pandemic:
The pandemic exposed the fragility of the world, highlighting the importance of human connection and health. It led to increased focus on existential risks to the Earth’s health, including climate change and transition risks.

Climate Change and Financial Risk:
Climate change, climate risk, transition risk, and net zero world are now integral parts of conversations with investors worldwide. There is a dramatic attitude change towards these issues, not just in the US but also in countries like Japan and China.

Pandemic’s Impact on Capitalism:
The pandemic changed capitalism in both good and bad ways. The pharmaceutical industry’s rapid development of vaccines showcased capitalism’s adaptability and growth potential. It also highlighted the fragility of global health and the importance of human connection.

Existential Risk of Climate Change:
The pandemic brought the existential risk of climate change to the forefront, making it a present concern rather than a theoretical one. This realization is driving a seismic change in how capital is invested, leading to a vast reallocation of capital.

Societal Planning and Inequality:
Larry Fink emphasizes the need for societal planning to accompany climate action. Without careful planning, the transition to a sustainable future could create unequal outcomes, exacerbating existing societal disparities. Collaboration between public and private companies, governments, and multilateral organizations is crucial to address this challenge.

Larry Fink’s Long-Term Investment Approach:
Larry Fink emphasizes the importance of long-termism in investment and criticizes the short-termism prevalent in financial media and markets. As the largest manager of retirement assets globally, BlackRock’s focus is on long-term outcomes and ensuring clients’ savings for retirement.

Stakeholder Capitalism:
Fink advocates for stakeholder capitalism, where business leaders consider the interests of employees, clients, and the community, in addition to shareholders. He believes that companies need to earn a license to operate in each place they work, especially in a deglobalizing world.

Climate Change as a Long-Term Risk:
Fink recognizes climate change as a long-term risk that can impact investment portfolios. He communicates expectations to companies regarding their climate change strategies, aiming to improve clients’ savings and create companies with more durable profitability.

Purpose of Fink’s Letters:
Fink clarifies that his annual letters to CEOs are not driven by a desire for power or publicity. His intention is to improve clients’ savings, create more durable profitability for companies, and address long-term risks like climate change.

Key Points:
Larry Fink has observed a growing focus among investors and business leaders on long-term sustainability and risk management. Fink emphasizes the importance for companies to communicate their long-term strategies to shareholders and stakeholders, as many fail to do so. Fink raises the issue of board responsibility in cases where a CEO or management team is dismissed and a drastic strategic pivot is made, questioning why board members are not held accountable for such decisions. In 2020, there was a significant increase in inflows into sustainable products, indicating a growing demand for ESG-focused investments. Fink encourages companies to report under TCFD and SASB frameworks to enhance transparency and enable investors to make more informed decisions. Investors are increasingly moving towards more sustainable and ESG-focused strategies, and these strategies have outperformed traditional indexes in recent years. Fink believes there will be a substantial migration away from traditional indexes towards sustainable strategies that align with ESG principles.

Sustainable Investing:
Significant shift in capital towards sustainable strategies, driven by investor demand. Companies that deny or delay sustainability reporting will face capital outflows. BlackRock engages with companies to inform them of these trends and encourage sustainable practices.

Active Investing and Performance:
Active investing reallocating capital away from companies slow to adopt sustainability towards those embracing it. This shift is reflected in PE ratios across industries, with sustainable companies outperforming deniers.

Net Zero and Regulation:
Increasing pressure from regulators and governments to achieve net zero emissions. Europe leads in net zero disclosure standards, with potential for similar regulations in the United States. BlackRock encourages self-regulation and proactive action by companies.

Broader Societal Involvement:
Net zero requires engagement beyond public companies, involving suppliers and private entities. Society’s role in demanding sustainability from all sectors is crucial. Selling hydrocarbons from public to private companies without transparent reporting hinders net zero progress.

Greenwashing and Declining Trusts:
Divesting dirty assets to private firms without addressing net zero impact is greenwashing. A potential solution is placing divested assets in declining trusts managed by companies, allowing for controlled depletion.

Fair Transition and Public-Private Partnerships:
Transition to sustainability must be fair for all companies and sectors. Ensuring a just transition for all parts of society is essential. Public-private partnerships can accelerate progress towards net zero and address energy needs.

Investment in the Future:
Larry Fink expresses concern about the lack of sufficient long-term planning for the energy transition. He emphasizes the need for a holistic approach to avoid disruptions and ensure a just transition. Fink suggests that public pressure on public companies may lead to an increase in private companies going private.

Private Sector’s Responsibility:
Mark Tersek agrees with Fink’s call for the private sector to step up and take a more active role in addressing climate change. Tersek highlights the need for private equity firms to extend ESG and impact investing principles to their entire portfolios.

Just Transition:
Tersek emphasizes the importance of a just transition, ensuring that the costs of climate progress are not disproportionately borne by lower-income parts of society. He expresses concern that this aspect often receives insufficient attention in environmental communities.

CEO Leadership and Purpose:
Tersek discusses the uncertainty that many CEOs face in determining their role in addressing climate change. He suggests that CEOs need to engage in thoughtful consideration of their company’s strengths, business opportunities, and purpose to effectively address climate risks.

BlackRock’s Approach:
Tersek commends BlackRock for using its influence to drive climate action while also taking practical steps through its investment strategies. He points to the evolution of BlackRock’s products as a positive example of how companies can contribute to accelerating the energy transition.

Transparency and Engagement with Companies:
Fink emphasizes that BlackRock does not dictate strategies to companies but instead asks them to provide transparent disclosure of their plans for addressing climate risks. He explains that BlackRock’s support for companies is based on their commitment to transparency and a constructive approach to the transition to a net-zero future.

Stakeholder Focus:
Fink believes that companies that prioritize stakeholders over shareholders performed better during the COVID-19 pandemic. He predicts that this trend will continue until a sense of normalcy returns to the work environment.

BlackRock’s Role in Educating Asset Owners on Climate Risk:
Larry Fink emphasizes the importance of educating asset owners, responsible for $8.7 trillion, about climate risk and transition risk. BlackRock aims to customize strategies that provide better ESG scores and a net-zero future, aligning with fiduciary standards to maximize profits for participants.

Creating Customized Portfolios for Asset Owners:
BlackRock works with asset owners to create customized portfolios that consider climate risk and ESG factors. These portfolios may include a mix of traditional and forward-focused hydrocarbon companies to meet the specific liability requirements of asset owners. The goal is to provide choice and encourage a shift away from traditional indexes with high exposure to hydrocarbons.

Balancing Fiduciary Responsibilities and ESG Considerations:
BlackRock faces criticism for creating portfolios that include hydrocarbon companies. The company’s approach is driven by its fiduciary responsibility to replicate returns of benchmark indexes while improving ESG scores. BlackRock engages with asset owners from various regions and industries to inform them about ESG investment options and choices.

Sino-US Collaboration on Climate Action:
Despite tensions between China and the US, the two countries are major players in the global climate fight. Larry Fink sees opportunities for progress through dialogue and collaboration. Positive conversations between business leaders and their Chinese counterparts suggest a potential for improved relations. China’s opening of its financial services market, including granting temporary licenses to BlackRock and other foreign companies, shows signs of cooperation.

Net Zero Implementation:
Larry Fink acknowledges the lack of a shared definition and taxonomy for net zero. He emphasizes the need for a consistent taxonomy to guide companies in achieving net zero. He also highlights the importance of scope two and three emissions in reaching net zero. Fink suggests that offsets are currently the primary method used by companies to reduce carbon footprint.

Government’s Role in Incentivizing Behavior:
Tracy McKibbin raises the question of whether governments should use carbon taxes or positive incentives to encourage desired behavior. Fink acknowledges the challenges in administering a just carbon tax. He emphasizes the need for incentives to drive progress toward reducing carbon emissions. Fink stresses the urgency of developing technologies for industries beyond power grids and vehicles, which are significant carbon producers.

Technology and Innovation:
Fink highlights the slow pace of technological development in industries other than solar and wind. He calls for government policies to accelerate technological advancement in various sectors. Fink emphasizes the need to expand the dialogue beyond power grids and personal vehicles to address carbon emissions in other industries.

Disclosure and Transparency:
Mark Tersek suggests that better and uniform disclosure on ESG and climate matters can accelerate progress. Fink agrees with the need for consistent reporting standards but emphasizes the importance of involving all stakeholders, including private companies.

Education of Asset Owners and Stakeholder Activism:
Akshaya Kumar raises the issue of educating asset owners and offering socially responsible investment options in retirement plans. Fink acknowledges the need for more responsible investment products and shareholder activism to drive change.

COVID-19 Impacts on Retirement Planning:
* Companies are beginning to focus on 401ks and offering more diverse options, but the COVID-19 pandemic has hindered progress.
* HR departments are prioritizing employee health and well-being over retirement planning during the pandemic.

Creating Certainty in Retirement:
* BlackRock is working on a new design for 401k plans that provides a guaranteed monthly paycheck during retirement, addressing the uncertainty of nest eggs.
* This new design was gaining traction before the pandemic but was put on hold due to the crisis.

Activism and Societal Change:
* Fink believes activism can impact individual companies but is not sufficient to address broader societal issues like climate change.
* He emphasizes the need for holistic solutions and investing in technology to create just and equitable transitions to a sustainable future.

ESG and Diversity, Equity, and Inclusion (DEI):
* Fink recognizes the connection between a company’s ESG efforts and their DEI initiatives.
* BlackRock educates asset holders on the importance of considering both ESG and DEI factors in their investment decisions.

BlackRock’s Commitment to DEI:
BlackRock CEO Larry Fink emphasizes the importance of diversity, equity, and inclusion (DEI) in the workplace and acknowledges the need for constant improvement. Fink stresses that DEI should be an integral part of a company’s culture, requiring transparency and accountability. BlackRock encourages companies to report under SASB standards to demonstrate their progress on DEI initiatives.

Transparency as a Catalyst for Progress:
Fink believes that transparency through reporting under SASB standards can help companies identify weaknesses and strengths in their DEI efforts. Increased transparency drives faster progress and compels companies to take meaningful actions to enhance DEI.

The Importance of Societal Change:
Fink emphasizes the need for broader societal change beyond public companies alone. He calls for all corporations, public and private, to embrace DEI initiatives.

Challenges Faced by BlackRock:
Fink admits that BlackRock, despite its efforts, still has room for improvement in its DEI practices. He mentions a recent town hall meeting at BlackRock, where he conveyed the importance of DEI and the expectation for employees to believe in and support these efforts.

Consumer Education and BlackRock’s Role:
BlackRock focuses on informing and educating financial advisors rather than directly targeting consumers. The company has developed robust risk management systems and educational resources to help clients understand their investments and priorities. BlackRock’s Sustainability leaders discuss topics like net zero to promote awareness and understanding among investors.

Larry Fink’s Commitment to Transparency:
In 2021, Larry Fink, CEO of BlackRock, reported 2 million hits on their website from clients seeking information on ESG (Environmental, Social, and Governance) investing. BlackRock is investing heavily in analytics and data to understand the impact of ESG factors on corporations and investment strategies. The company intends to redistribute this information through its website and network of clients worldwide.

The Importance of CEO’s Voices:
Fink believes that today, business leaders’ voices are very important and resonate more with people than politicians. CEOs have a responsibility to use their voices courageously and speak out on important issues. Their voices should be heard and they should be more forthright in addressing major stakeholder concerns.

Larry Fink’s Focus on Stakeholders:
Fink focuses on delivering value to his three major stakeholders: employees, clients, and society. He believes that by doing so, BlackRock can create more durable profitability for its shareholders. Fink emphasizes the need to empower stakeholders and address their concerns.

ESG SPACs as a Positive Development:
The emergence of ESG SPACs (Special Purpose Acquisition Companies) is seen as a positive step in advancing ESG progress. Fink believes that increasing discussions and conversations about ESG issues can lead to more meaningful change. The inclusion of ESG in corporate-level conversations and policy organizations is a sign of progress.

Addressing Long-Term Planning Challenges:
Fink acknowledges the challenge of long-term planning, especially in democracies. He emphasizes the need to avoid window dressing and focus on real, long-term change. Fink believes that governments and societies need to embrace ESG principles and work towards sustainable solutions.