Data & Disclosure Matter Heading Toward the Net Zero Economy - Tell Us About Your Company's Strategy, Please

Setting the Pace & Shaping the 2021 Sustainability Conversation

At the beginning of the calendar year, the CEO of the world’s largest asset management firms sends his annual “guidance” missive to the Chief Executive Officers of publicly-traded firms. Here is where we stand, here is what we expect, is the tone set by this global manager of investors’ assets.

This is the much-anticipated letter from CEO Larry Fink of BlackRock to a universe of publicly traded companies’ CEO. In 2021, he reminds the corporate leaders that his letters seek to highlight the issues that “are pivotal to creating durable value – such as capital management, long-term strategy, purpose, and climate change”.

The letter writing began back in the time of the recovery from the 2008-09 financial crisis, which took a considerable toll on people’s finances. New directions were needed for management of companies and so the advice to CEOs in companies where BlackRock directed clients’ capital.

2008 was bad – and now in 2020/ into 2021 the Coronavirus pandemic has taken a more far-reaching toll (he writes), enveloping the entire globe, and changing it – permanently. (That is, changing the way we work, learn, access medicine, and more, CEO Fink explains.) The pandemic accelerated deeper trends such as systemic inequalities.

CEO Fink states it bluntly: “I believe that the pandemic has presented such an existential crisis – a stark reminder of our fragility – that is has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives.”

In the capital markets in 2020, a long but rapidly-accelerating transition was evident, which CEO Fink believes will reshape asset prices of every type. What this means: “We know that climate risk is investment risk. But we also believe the climate transition presents a historic opportunity” (Larry Fink in the letter).

The CEOs of many public companies are on notice: There is no company, CEO Fink explains, whose business model won’t be profoundly affected by the transition to a net zero economy where more carbon dioxide is removed from the atmosphere than is put in by 2050. And so, this important perspective is shared: “As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition, will distinguish themselves with their stakeholders.”

The importance to BlackRock, as fiduciary for tens of millions of investors and plan or fund beneficiaries: “Investors cannot prepare their portfolios for this transition unless they understand how each and every company is prepared for both the physical threats of climate change and the global economy’s transition to net zero. They ask managers like BlackRock to accelerate our data and analysis capabilities – and we are committed to meeting their needs.”

The letter to corporate CEOs goes on to remind them that in 2020 all companies were asked to report in alignment with the TCFD’s recommendations and SASB Standards BlackRock issues its own first TCFD and SASB Reports last year.

And for 2021: The BlackRock letter asks companies to disclose a plan for how their business model will be compatible when we reach that net zero point and to disclose how the plan will be incorporated into the company’s long-term strategy. And of course, the plan should be reviewed by the company’s board of directors.

BlackRock signals that it is on board with the drive to create a single ESG global reporting standard so investors like the firm can make more informed decisions “about how to achieve durable long-term returns”. And this is not just about corporate equities – CEO Fink believes that issuers of public debt should also be disclosing how they address climate risks.

Here at G&A Institute, each year we see that the impact of the CEO-to-CEO letter (Larry Fink to a universe of corporate leaders) is immediate, with the corporate leader-recipient taking steps to try to meet the BlackRock expectations as the calendar pages turn. The well-prepared corporate sustainability leaders that we work with step up the paces for their internal teams to maintain and build on their leadership. The not-started-yet-on-the-sustainability-journey company leaders understand the importance of what CEO Fink is explaining and how that might affect their ability to raise capital (short- and longer-term).

As the BlackRock chief explains: “We are greatly encouraged by the progress we’ve seen over the past year – a 363% increase in SASB disclosures and more than 1,700 companies expressing support for the TCFD.” That is impact!

Background on this important communication to CEOs of publicly-traded enterprises and background on the BlackRock positioning on climate risk are must-reads for every sustainability professional and we include this content for you in the newsletter.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.