Highlights from BlackRock CEO Fink’s annual letter to leaders

BlackRock, Inc. (NYSE: BLK) is the world’s largest fund manager with assets under management exceeding $9 trillion. On Tuesday the company’s CEO Larry Fink published his annual letter to the business community, noting that portfolio companies must detail their climate change strategy.

‘Disclose a plan’

Fink wrote in his letter that BlackRock is asking companies to “disclose a plan for how their business model will be compatible with a net-zero economy.” A net-zero economy, he noted, consists of the world warming “well below” two degrees Celsius over the decades. By 2050, the world will operate with net-zero greenhouse gas emissions.

Sustainability disclosures are not only in a companies best interest but those of shareholders, he wrote. Portfolio companies and those that want to transact with BlackRock should do so quickly and before it becomes set into law.

“No company can easily plan over thirty years, but we believe all companies – including BlackRock – must begin to address the transition to net-zero today,” he wrote. “We are taking a number of steps to help investors prepare their portfolios for a net-zero world, including capturing opportunities created by the net-zero transition.

Invezz discussed in detail Fink’s 2020 letter where he said 2019 is a “distant memory” as it was written in the very early stages of the COVID-19 pandemic.

‘Climate risk is an investment risk’

Fink highlighted in his 2020 letter that he believes “climate risk is investment risk.” As investors start to include climate risk into how they value stocks, companies with poor track records risk being on the wrong side of a “fundamental reallocation of capital.”

Such was the case in 2020. From January through November, mutual fund and ETF investors bought $288 billion worth of sustainable assets, marking a 96% increase over the full-year 2019. But this is the start of a long-term shift that will play out over many years and “reshape asset prices of every type.”

On the other hand, a renewed focus on climate transition and solutions represents a “historic investment opportunity,” he wrote. Fortunately, much has changed over the years as building a climate-aware portfolio was “available only to the largest investors.”

Today, the creation of sustainable index investments has allowed investors to allocate their capital towards companies that are better positioned to address climate risk. This will add further pressure for companies and their boards to consider how this will impact their stock.

“As more and more investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further,” he wrote.

‘Great optimism’

The transition towards a cleaner and more sustainable world will take time and prove to be complex, Fink wrote. But it is “essential” for the shift to take place today in order to create a better economy that benefits more people.

 “I have great optimism about the future of capitalism and the future health of the economy – not in spite of the energy transition, but because of it,” he wrote.