Introduction:
Larry Fink, founder, chairman, and CEO of BlackRock, discussed the lessons from the pandemic for the business community in connection with climate change and other challenges.

The Pandemic’s Impact on Capitalism:
Fink believes the pandemic changed capitalism in both good and bad ways. He highlighted the pharmaceutical industry’s rapid development of vaccinations as an example of capitalism’s resilience and adaptability. However, he also acknowledged the pandemic’s severe impact on society, particularly in terms of health and mental well-being.

Climate Change and Existential Risk:
The pandemic illustrated the fragility of the world and the importance of human connection. It also brought greater focus to the existential risk of the Earth’s health, including climate change and transition issues. Fink noted that conversations about climate risk, transition risk, and net zero world are now a part of every conversation with investors worldwide.

Seismic Change in Investing:
Fink believes we are witnessing a seismic change in how we invest due to the growing awareness of climate risks. This will lead to a vast reallocation of capital, transforming society, work, and living.

The Need for Societal Planning:
Fink emphasized the importance of societal planning alongside climate risk mitigation efforts. He warned that focusing solely on Earth’s issues without considering societal implications could create a very unequal outcome. He called for collaboration between public and private companies, government, and multilateral organizations to address this issue.

The Importance of Long-Termism:
Larry Fink emphasizes the significance of long-term thinking in investment and business management. He criticizes the short-term focus prevalent in financial markets and media. Fink’s annual letters to CEOs aim to improve clients’ savings and create more durable profitability.

Stakeholder Capitalism:
Fink advocates for stakeholder capitalism, where businesses consider the interests of employees, clients, and the community. In a deglobalized world, multinational firms must earn a license to operate in each region by fulfilling their stakeholder responsibilities.

Climate Risk and Investing:
Fink believes climate risk will impact long-term portfolios and must be addressed by businesses. BlackRock informs companies it invests in about its expectations and encourages them to adopt net-zero goals. Fink clarifies that his actions are not motivated by a desire for power or publicity but by a commitment to improving clients’ savings.

Transparency and Long-Term Strategy:
Fink requests companies to provide shareholders with clear information about their long-term strategies. He also emphasizes the role of boards in reviewing and approving long-term strategies. Fink questions the responsibility of boards that dismiss CEOs and management teams without considering their own role in strategic decision-making.

Pushing for Progress:
Fink’s goal is to push business leaders and boards to embrace long-termism, stakeholder capitalism, and climate risk management. He clarifies that BlackRock’s actions are not an attempt to be excessive or regulatory but rather a means to drive positive change.

Shifting Investment Landscape:
In 2020, the sustainable investment industry saw a remarkable 115% increase in inflows, reaching $360 billion. Investors are increasingly demanding transparency and sustainability from companies, leading to a surge in ESG-focused strategies. Sustainable investment strategies outperformed traditional indexes in 2020 and 2019.

A Tectonic Shift in Capital:
A significant shift in capital is occurring, moving away from traditional indexes towards more sustainable investment strategies. Companies that fail to embrace sustainability and ESG reporting may face outflows and underperformance.

Investor Engagement and Active Investing:
BlackRock engages with companies to inform them about the importance of sustainability and ESG practices. Active investing involves reallocating capital away from companies that deny or lag in sustainability towards those that excel in this area.

Net Zero and Regulatory Push:
Regulators and governments worldwide are moving towards net zero disclosure standards. BlackRock encourages self-regulation and proactive adoption of sustainability practices to avoid mandated requirements.

Beyond Public Companies:
Society as a whole needs to embrace sustainability for net zero to be achievable. Private companies, suppliers, and individuals must also play their part in reducing emissions and adopting sustainable practices.

Challenges and Solutions:
The transition to net zero requires a collective effort involving governments, companies, and individuals. Society needs to recognize the urgency of addressing climate change and demand sustainability across all sectors.

Transparency and Accountability:
Larry Fink expresses concern about public companies selling their dirtiest hydrocarbons to private equity firms. He emphasizes the importance of transparency and accountability in reducing carbon emissions. Fink believes that the shift from public to private ownership of polluting assets could hinder progress toward net zero goals.

Greenwashing and Net Zero Targets:
Fink criticizes the practice of selling hydrocarbons from public companies to private equity firms as “greenwashing” because it does not contribute to reducing global emissions. He advocates for public policies that encourage companies to retain ownership of their polluting assets and manage them responsibly.

Declining Trusts for Hydrocarbon Assets:
Fink proposes the creation of declining trusts for hydrocarbon assets, managed by the companies that own them. Private capital could be invested in these trusts, but the companies would retain control and ensure a responsible transition away from hydrocarbons. This approach recognizes the need for a gradual transition to net zero, given the current limitations of science and technology.

Fairness and Just Transition:
Fink emphasizes the importance of ensuring a fair transition to net zero for all stakeholders. He stresses the need for public-private partnerships and long-term planning at the governmental level to address the challenges of the energy transition.

Demand for Sustainable Strategies:
Fink observes a surge in capital flowing into sustainable strategies and renewable energy companies. He urges countries to focus on public-private investments to accelerate the transition to clean energy.

National Power Grid and Energy Fluency:
Fink highlights the need for a national power grid that integrates renewables and hydrocarbons. He emphasizes the importance of energy fluency, enabling seamless operation and management of the grid. This approach aims to enhance energy security and reliability, especially in light of events like the freeze in the Midwest and Texas.

Key Points:

Larry Fink’s Perspective:
Emphasizes the need for more long-term planning and holistic approach to address the transition to a sustainable future. Advocates for private companies, especially prominent private equity firms, to step up and lead the charge in ESG investing. Highlights the importance of a just transition, ensuring that climate progress does not disproportionately burden lower income segments of society. Stresses the role of asset managers in educating asset owners about sustainable investing options and providing customized strategies that align with their fiduciary responsibilities.

Mark Tersek’s Perspective:
Agrees with Larry Fink’s call for private sector involvement and the need for CEOs to take ownership of their sustainability strategies. Urges companies to be proactive in identifying their strengths and business opportunities in the context of sustainability. Praises BlackRock’s efforts in using its platform to promote sustainable investing and its commitment to developing robust analytics and data to assess climate and transition risks.

Larry Fink on U.S.-China Relations:
Emphasizes the importance of dialogue and collaboration between the two countries, despite their differences, to address global climate challenges. Notes positive developments, such as the Secretary of State’s upcoming bilateral meeting with his Chinese counterpart and the opening of the Chinese financial services market to foreign companies.

Overall Takeaway:
The discussion highlights the growing focus on sustainable investing and the role of asset managers and corporations in driving the transition to a more sustainable future. It also underscores the need for international cooperation, particularly between the United States and China, to address global climate challenges effectively.

Key Insights:

1. Net Zero Definition:
There is currently no shared definition for the term “net zero.” Some believe reducing emissions should be prioritized before considering offsets, while others suggest any approach leading to net zero is acceptable.

2. Need for a Unified Taxonomy:
A consistent taxonomy for net zero is crucial to ensure clarity and comparability. Without a taxonomy, companies may adopt different metrics, making it difficult to assess their progress. Governments need to establish a unifying taxonomy that all stakeholders can agree upon.

3. Role of Governments:
Governments play a vital role in driving the transition to net zero. They need to focus on all sectors of society, not just public companies, to achieve meaningful change. Governments should provide incentives to encourage both renewable companies and conventional oil and gas companies to reduce their carbon emissions.

4. Challenges in Measuring Supplier Emissions:
There is currently no standardized way to measure supplier emissions. Major companies cannot impose their metrics on suppliers, leading to inconsistency and difficulty in tracking progress.

5. Importance of Collaboration:
Collaboration among governments, companies, and stakeholders is essential to create a unified approach to net zero. COP26 can serve as a platform for countries to come together and agree on a common taxonomy.

Challenges in Implementing a Just Carbon Tax:
Implementing a just carbon tax poses difficulties, and punitive measures are not the solution. Incentives are needed to drive progress towards a sustainable future.

Addressing the Green Premium:
Green electricity has become increasingly cost-competitive with hydrocarbons. Redundancies in energy storage and a combination of hydrocarbons and renewables are necessary. Developing technologies for green hydrogen and assisting farmers in reducing carbon emissions are crucial.

The Need for Broader Focus and Technological Innovation:
Expanding the dialogue beyond power grids, cars, and trucks to address other major carbon-producing industries. Developing technologies for a wide range of industries to achieve net zero emissions. Leveraging government policies to accelerate innovation in various industries.

Importance of Uniform ESG Disclosure:
Better and uniform disclosure on ESG and climate matters can accelerate progress across different industries. Companies should report under GCFD and SASB frameworks. Private companies need to step up and take responsibility.

Individual Stakeholders’ Role in the Transition:
Making ESG-sensitive investment products available in 401k and 403b plans. Encouraging shareholder activism among individual stakeholders. Focusing on education and awareness to promote responsible investing.

COVID Impacts on 401k Conversations:
COVID-19 has hindered HR departments from focusing on 401k plans. Companies are prioritizing mental health, employee health, and other urgent issues. Sustainability-related conversations and redesigning product profiles have been paused.

New 401k Design for Guaranteed Paycheck:
A new 401k design is being developed to provide more certainty and stability during retirement. This design aims to create a guaranteed paycheck for retirees. The goal is to address the uncertainty surrounding retirement income longevity.

Impact of Pandemic on Conversations:
The pandemic has slowed down discussions and initiatives related to 401k plans and sustainable investments. Once the pandemic is under control and becomes manageable, these conversations are expected to resume. Vaccination efforts are crucial in bringing the pandemic under control and facilitating these conversations.

Activism and Individual Companies:
While activism may influence individual companies, it is unlikely to lead to widespread changes. Systemic change requires broader shifts in capital allocation and investment strategies.

Larry Fink’s Perspective on Climate Risk:
Fink believes that the current approach to climate risk is not holistic enough and focuses on attacking individual companies rather than seeking broader solutions. He emphasizes the importance of investing in technology and creating new solutions that can reduce carbon footprints while also being socially just. Fink acknowledges that a rapid transition to a greener economy may cause disruptions and injustices for certain segments of society, making it politically challenging.

Connecting ESG Efforts with Diversity, Equity, and Inclusion (DEI):
According to Fink, there is a strong link between a company’s ESG efforts and its commitment to DEI. He believes that companies need to report their ESG and DEI efforts transparently, using frameworks like SASB, to demonstrate progress and hold themselves accountable. Fink emphasizes the importance of creating a culture of DEI within organizations, acknowledging that BlackRock itself has room for improvement in this area.

The Role of Consumers in Driving Ethical and Sustainable Products:
Fink acknowledges the role of consumers in demanding more ethical and sustainable products and services. He highlights the need to educate consumers about the impact of their purchasing power and how they can influence companies to adopt more responsible practices. Fink suggests that BlackRock, while not directly reaching consumers, works with financial advisors who can play a role in educating clients about the importance of ESG and DEI factors in investment decisions.

BlackRock’s Commitment to Transparency and Collaboration:
Fink emphasizes the importance of transparency in reporting ESG and DEI efforts, as it allows stakeholders to assess a company’s progress and hold it accountable. He calls for collaboration among companies, financial institutions, and society at large to accelerate the transition to a more sustainable and socially just economy.

Conclusion:
Fink acknowledges that there is no perfect solution to the challenges of climate risk, DEI, and consumer education, but he believes that by working together and embracing transparency, companies and society can make significant progress towards a more sustainable and equitable future.

BlackRock’s Unique Position and Responsibility:
BlackRock’s $8.7 trillion in assets under management is not invested directly by the firm but rather serves a diverse range of clients, including 401k plans, corporations, sovereign wealth funds, and wealth offices. BlackRock’s business model does not involve direct interaction with individual investors, but the firm recognizes its responsibility to inform and educate clients and their investors about responsible investing.

BlackRock’s Initiatives for Knowledge Building and Risk Management:
BlackRock has developed robust risk management systems to assist clients in understanding their investment risks. Aladdin Wealth is a tool that helps financial advisors communicate with individual investors about risks associated with their investments. The BlackRock Investor Institute publishes various materials related to investing and priorities, accessible worldwide on the firm’s website. BlackRock’s recent webinar on net zero sustainability attracted 2 million views, demonstrating the demand for information on responsible investing.

Expanding Access to Information through Analytics and Data:
BlackRock is investing heavily in analytics and data to better understand the impact of ESG factors on corporations and investment strategies. The firm has acquired minority interests in companies with exclusive arrangements for their data and analytics, enabling BlackRock to gain insights into corporate performance and investment impact. BlackRock aims to redistribute this information through its website, network of clients, and various platforms to inform investors and stakeholders.

BlackRock’s Role as a Voice for Responsible Investing:
BlackRock’s voice and influence have grown in recent years, with CEOs’ words resonating more with the public than politicians. BlackRock embraces this responsibility and is willing to take a courageous stance on ESG issues, even when it may be unpopular. The firm’s focus is on delivering durable profitability for its shareholders by considering the interests of its three major stakeholders: employees, clients, and society.

ESG SPACs as a Positive Development:
The emergence of ESG SPACs is seen as a positive step in promoting progress toward responsible investing. BlackRock believes that increasing discussions and attention on ESG issues can accelerate the movement toward sustainable investing. However, BlackRock emphasizes the need to avoid window dressing and ensure that all sectors of society, including governments, embrace long-term planning for sustainable change.

Long-Term Planning and Government’s Role:
Long-term planning is crucial for addressing climate change and other sustainability challenges, but it is often lacking in democratic governments. BlackRock calls for a renewed focus on long-term planning at the government level to create real change over the next 30 years. The firm believes that without long-term planning, solving the challenges of sustainable investing will be difficult.