Larry Fink (BlackRock Co-founder) – ESG Investing | New York Times Events (Nov 2022)
Chapters
00:01:25 Economic Malaise in a Post-Inflation World
Overview: Larry Fink, an experienced financial expert, discusses the ongoing economic landscape, highlighting challenges such as elevated inflation, market declines, and the impact of the US dollar’s appreciation. He anticipates a rapid decline in inflation but raises concerns about the global economy’s long-term prospects.
Inflation and Its Implications: Fink believes inflation will abate quickly but questions whether it can return to the 2% target set by central banks. He points out that a higher inflation rate, around 3-4%, was once desirable. However, the current situation has led to a loss of hope among many.
Demographic Challenges: Fink emphasizes the declining birth rates and demographic shifts that will contribute to a period of malaise. This will have significant implications for economic growth and productivity.
The Transformation of China: Fink observes China’s transition from an economically focused economy to a more ideologically driven one. This shift is impacting the global economy and slowing down China’s economic growth.
Economic Shifts in Europe: Fink highlights the profound changes in the European economy due to the Russian gas crisis, rising energy costs, and government fiscal support. These factors have altered the economic landscape in the region.
Post-Inflationary Outlook: Fink predicts that after the current inflation spike subsides, the world will settle into a new normal with inflation rates around 2-3% or 3-4%. This will pose fundamental challenges for policymakers and businesses.
Limits of Fiscal Stimulus: Fink cautions against excessive fiscal stimulus by governments. He cites the recent example of the UK, where aggressive stimulus measures led to a market rebellion. He believes governments must exercise caution in using fiscal tools to avoid negative consequences.
00:03:48 Changing Investment Strategies in a High-Interest Rate Environment
Economic Outlook: Larry Fink anticipates higher interest rates and limited fiscal stimulus, leading to a paradigm shift in investment strategies. He believes long-term investors can benefit from this environment by investing in assets with higher yields and lower risk.
Investment Strategies: Fink emphasizes the importance of focusing on long-term outcomes and meeting long-term liabilities. He suggests investing in assets that provide a coupon or regular income stream, rather than relying solely on capital appreciation. Fink highlights the potential for high returns in investments related to decarbonization and climate change, driven by government subsidies and regulations.
Diligence in Venture Capital: In light of the FTX collapse, Fink acknowledges concerns about the due diligence practices of venture capital firms. He emphasizes the need for thorough diligence, especially in the area of decarbonization, which requires specialized scientific and technical expertise. Fink believes the venture capital landscape will transform, with a shift towards investments in hard science and sustainable technologies.
Views on Crypto: Fink maintains his skepticism towards most cryptocurrency companies, believing many are not viable and lack substance. He highlights his partnership with Coinbase, but clarifies that it is a small part of BlackRock’s business.
00:09:54 Future of Finance: Tokenization, Disruption, and Social Mission
Crypto and Tokenization: Larry Fink believes that crypto technology has the potential to revolutionize investing, particularly through tokenization of securities. Tokenization enables distributed ledgers, transparency in beneficial ownership, and instantaneous settlement, reducing fees and eliminating the need for intermediaries. Fink envisions a future where voting rights and beneficial ownership are directly linked to tokenized securities, transforming the role of shareholders.
Evolution of Investing: Fink emphasizes the transformative impact of ETFs on investing, shifting it towards active exposure rather than passive indexing. He anticipates that the next generation of markets will involve tokenized securities, leveraging blockchain technology for greater efficiency and transparency.
Custodianship and Disruption: BlackRock is not a custodian bank and relies on third-party custodians for asset safekeeping. Fink acknowledges that the FTX collapse highlights the importance of true custodianship and distributed ledgers in the crypto space. Tokenization could potentially disrupt the role of trust banks and intermediaries, leading to lower fees and more efficient transactions.
ESG and Social Mission of Business: Fink reflects on his past letters addressing the social mission of businesses and the concept of ESG. He acknowledges the recent backlash against woke capitalism, particularly from Republican politicians. Fink emphasizes the need for balance and symmetry in addressing social and environmental issues while also considering economic realities.
00:13:39 Stakeholder Capitalism and Voting Rights in an Era of Populism
BlackRock’s Stance on Stakeholder Capitalism: Larry Fink emphasizes that stakeholder capitalism is not a political or woke concept; it is fundamental capitalism. Companies should prioritize the needs of their employees, clients, and other stakeholders to achieve long-term profitability and shareholder interests. Stakeholder capitalism involves responding to stakeholder needs while considering the beneficial interests of shareholders.
BlackRock’s Performance Despite Criticism: Despite attacks from certain states, BlackRock has experienced significant net inflows, indicating that the majority of investors support their approach. BlackRock is actively correcting false narratives and misconceptions about its practices.
Climate Change and Hydrocarbon Usage: Fink acknowledges the importance of addressing climate change but emphasizes the need for a long-term perspective. He believes hydrocarbons will be necessary for 70 years, but companies must focus on carbon capture and reduction.
Shareholder Voting and Proxy Voting Organizations: BlackRock is enabling defined benefit plans to take back their voting power and exercise their own discretion. Fink expresses concern that returning voting power to individuals could lead to negative outcomes if they do not conduct proper research or rely on proxy voting organizations. He highlights the risk of increased influence for activists and foreign investors if shareholders do not actively participate in voting.
BlackRock’s Responsibility as an Asset Manager: BlackRock recognizes its responsibility in managing over eight trillion dollars of capital that belongs to its clients. The firm is taking steps to provide shareholders with more control over their votes, but it also emphasizes the importance of shareholders taking responsibility for their voting decisions.
00:20:21 Board Governance and Long-Term Investment Strategies
Divestment: Larry Fink believes divesting from certain industries like hydrocarbons is not an effective solution for achieving net zero emissions. Divesting can lead to private ownership of these industries, which may not be transparent and less accountable. It is better to keep investments in these industries and work on long-term solutions for reducing emissions.
ExxonMobil’s Underperformance and Governance: Fink clarifies that BlackRock’s previous push for ExxonMobil to make divestitures was related to governance issues rather than environmental concerns. Since the vote, ExxonMobil has outperformed its peers, not due to environmental reasons, but due to the rise in energy prices.
Influence of BlackRock’s Letters on Boards: Fink emphasizes that his letters to CEOs were intended to focus on long-term issues, rather than short-term market trends. The goal of the letters is to provide hope and confidence to investors, encouraging them to invest for the long term.
Importance of Hope in Long-Term Investing: Fink believes that hope is essential for encouraging people to invest for retirement and other long-term goals. Without hope, individuals may keep their savings in bank accounts, which can limit economic growth. The U.S. has historically had an advantage in long-term hope, which has contributed to its differential growth.
Abstract
“Global Economic Shifts and Future Strategies: Analyzing Larry Fink’s Outlook and BlackRock’s Role in a Transforming Financial Landscape”
In a comprehensive analysis of the global economic landscape, this article delves into the critical insights and strategies proposed by Larry Fink, CEO of BlackRock. Amidst a backdrop of elevated inflation, geopolitical tensions, and shifting investment paradigms, Fink’s perspective offers a unique lens on navigating these challenges. Key areas of focus include the transformation of China’s economy, the impact of the Russian gas crisis on Europe, the potential stabilization of global growth and inflation post-current spikes, and the limitations of government fiscal stimulus. Importantly, Fink’s views on investment strategies, such as prioritizing long-term investments, diversification, and the burgeoning field of decarbonization, provide a roadmap for navigating a challenging economic environment. Additionally, his insights on the tokenization of securities and the ongoing debate around ESG investing highlight the evolving nature of the financial industry. This article aims to distill these complex themes into a cohesive narrative, providing readers with a clear understanding of the current economic climate and future trends.
Main Ideas and Expansion:
The current global economic landscape is heavily influenced by high inflation rates, particularly in the United States, where the dollar’s appreciation mitigates some effects. Contrary to quick resolution expectations, achieving a 2% inflation target is proving difficult, presenting a complex and evolving economic scenario. This situation is further compounded by declining birth rates, pointing towards a period of economic malaise and necessitating strategic adjustments in both economic policies and investment strategies.
China’s recent ideological shift, favoring political over economic considerations, has led to an economic slowdown, which has ripple effects on global markets and investment perspectives. Concurrently, Europe faces significant economic challenges due to the Russian gas crisis and escalating energy costs, prompting a critical reevaluation of energy policies and economic dependencies.
Looking ahead, the post-inflation era might stabilize into a scenario of 2-3% growth and 3-4% inflation, suggesting a new baseline for economic planning and investment strategies. However, the effectiveness of government fiscal stimulus is being questioned, as evidenced by market reactions to interventions like those in the UK, indicating a need for balanced and sustainable economic policies.
Larry Fink forecasts a future of sustained higher interest rates and limited prospects for fiscal stimulus, which will impact overall economic growth. He advocates for long-term investments, diversification, and a focus on income-generating assets to address the challenges of a higher interest rate environment. Fink also identifies significant investment potential in decarbonization efforts and raises concerns about the lack of due diligence in venture capital investments, predicting a shift towards investments in hard science and decarbonization technologies.
Despite skepticism about the viability of most cryptocurrency companies, Fink’s partnership with Coinbase reflects an openness to credible players in the crypto space. His vision includes the tokenization of securities, which could revolutionize the financial industry. In the realm of ESG investing, Fink advocates for a balanced approach, considering various stakeholders’ perspectives, despite facing criticism. He reiterates that stakeholder capitalism, which considers the needs of all stakeholders for long-term profitability, is fundamental to sustainable business practices.
The challenge of addressing climate change amidst populism and short-term thinking is significant. Fink’s initiative to empower individual shareholder voting, while raising concerns about informed decision-making, reflects the evolving nature of shareholder power. BlackRock’s pivotal role in managing over
$8 trillion in assets underlines the importance of their decisions in the financial world. Fink’s approach of offering direct shareholder voting and balancing diverse interests highlights the complexities of modern financial governance.
CalPERS’ divestment from certain sectors and BlackRock’s transparent and public investments in hydrocarbons for net zero emissions demonstrate the financial implications and strategic considerations of divestment strategies. Additionally, Fink’s clarification on BlackRock’s stance on ExxonMobil, focusing on governance rather than environmental concerns, acknowledges the company’s subsequent market performance.
Fink’s letters to CEOs and stakeholders aim to address long-term issues, providing hope and confidence to investors in the current political and social landscape. He emphasizes the importance of maintaining a long-term perspective in investing. The role of hope in long-term investing is crucial for encouraging people to invest for retirement and other goals, with Fink noting that hope is essential for economic growth.
Incorporating recent updates, Larry Fink stresses that stakeholder capitalism is a fundamental aspect of capitalism, not a political or woke concept. Companies should prioritize the needs of their employees, clients, and other stakeholders to achieve long-term profitability. Despite criticism from certain states, BlackRock’s significant net inflows indicate investor support for their approach, and the firm actively corrects false narratives about its practices.
Addressing climate change, Fink recognizes the need for hydrocarbons for the next 70 years, with a focus on carbon capture and reduction. BlackRock is enabling defined benefit plans to take back voting power, though Fink expresses concerns about potential negative outcomes if individual shareholders do not conduct proper research or rely on proxy voting organizations. He highlights the risk of increased influence for activists and foreign investors if shareholders do not actively participate in voting.
As an asset manager, BlackRock acknowledges its responsibility in managing a vast amount of capital and emphasizes the importance of shareholder responsibility in voting decisions. Fink believes that divesting from industries like hydrocarbons is not an effective solution for achieving net zero emissions, advocating for keeping investments in these industries and working on long-term solutions for reducing emissions.
Larry Fink’s vision of the future financial landscape is characterized by tokenized securities, instantaneous settlements, and a continued focus on ESG investing. His approach, balancing stakeholder interests for long-term profitability, reflects a nuanced understanding of the challenges and opportunities in the current global economic environment. As the CEO of BlackRock, Fink’s insights and strategies offer valuable guidance for navigating these complex times, emphasizing the need for adaptability, foresight, and a sustainable approach to economic growth and investment.
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