Larry Fink, the CEO of BlackRock, an American multinational investment management corporation, has released his annual letter to CEOs.
The events of 2020 and the need for companies to transition to a net-zero economy, shaped this year’s letter. The past months have been challenging in so many ways. Nonetheless, there are signs of promise, including businesses that have moved forcefully to face climate risk.
In this blog, we summarise some key points of the letter and what they mean for the future of ESG reporting and business.
The beginning of changes
Climate risk is investment risk, but at the same time, the climate transition presents a historic investment opportunity. Larry Fink acknowledges that in his letter, by mentioning several notable moments in the past year.
- Throughout 2020, investors invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019.
- A plethora of governments, responsible for more than 60% of global emissions, are considering or already implementing commitments to achieve net-zero emissions in 2020.
- The EU, China, Japan, and South Korea all made historic commitments to achieve net-zero carbon emissions.
- The U.S. committed to re-joining the Paris Agreement.
Towards a net-zero transition
The transition to a net-zero economy is at the heart of Larry Fink’s letter to CEOs. Almost every company will be in some way affected by the transformation to a net-zero economy. The shift will inevitably be challenging, but it is essential to developing a more flexible economy that serves more people. It is crucial to acknowledge that the net-zero transition will transform the economy with profound implications for companies and investors alike; it will dramatically reshape the economy.
The importance of data
Larry Fink's position is clear: more climate transparency leads to more profitable investing. Better sustainability disclosures benefit both companies and investors. Thus, a global standard might be what will enable investors to make more insightful choices. And of course, governments, worldwide, are also expected to tackle large climate infrastructure projects.
Also, these disclosures should be successful, so they should also be considered by prominent private corporations. Specifically, Larry Fink states that companies should publish a disclosure in line with industry-specific SASB Standards by year-end or disclose a similar set of data in a way that is relevant to the business, as well as disclose climate-related risks in line with the TCFD’s recommendations.
BlackRock’s net-zero commitment
BlackRock's CEO states that they are carbon neutral today in their private operations, and they are taking several steps to help investors prepare their portfolios for a net-zero world. Larry Fink urges all corporations – including BlackRock – to prepare for their transition to net-zero goals today.
What ESG performance means for business
Businesses with more genuine environmental, social, and governance (ESG) profiles have, and will continue to exceed their peers. Corporations need to build a sincere connection with stakeholders, so they can be able to recognise and react to the transformations occurring in the world.
Our world is under pressure, and we are still facing a challenge ahead of us. The importance of sustainability and climate change should be universally recognised. Environmental and social issues should not be separated when planning strategies and proactive steps towards a net-zero economy need to be made.
If you would like to explore how Greenstone can help with your data collection and reporting strategy in relation to TCFD, SASB and your wider ESG and sustainability reporting strategy, please talk to us.