2021 Lane Reports

Larry Fink Presses the Case for ESG

Monday, November 1, 2021 9:00 am
by Marc J. Lane

Larry Fink Presses the Case for ESG

By Marc J. Lane

BlackRock CEO Larry Fink’s annual letter to corporate chiefs has taken on the prominent place in the sustainable investing world that Warren Buffett’s annual missive to Berkshire Hathaway’s shareholders has occupied for decades among value investors. Fink’s cautionary letter this year signals that if public companies don’t improve their ESG (Environmental, Social and Governance) practices and policies on their own, regulators will likely force their hands. No less important, he persuasively argues that it’s in the corporate community’s self-interest to exercise real leadership in meeting its obligations to society. Coming from BlackRock’s head honcho, the steward of some $9 trillion dollars under management, Fink’s words are to be taken seriously by companies and markets alike.

Fink makes the indisputable point that companies need to act on climate change, immediately and dramatically. In his words, “The pandemic has presented such an existential crisis—such a stark reminder of our fragility—that it 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.”

To no one’s surprise, Fink is a data guy. He calls for a single, global carbon-emissions disclosure standard for all companies, and he’s right about that. Only that which is measured can be rewarded or punished. If companies continue to pick their own standards, confusion and disinformation will reign. So a company’s environmental performance needs to be measured with no less rigor, consistency and reliability than its financial results.

While Fink promotes carbon emission accountability, he’s also serious about inclusive capitalism. A racial reckoning is underway, but too slowly and unevenly in the hearts and minds of many of us. To Fink, corporate diversity, equity and inclusion programs go in the right direction, but not nearly far enough. It’s good that companies are increasingly promoting equality and opportunity within their workforces but, in Fink’s view, they also need to promote those values in the world.

For its part BlackRock’s own ESG performance hasn’t been what it should be. Last November Morningstar published the first round of a new “ESG Commitment Level” evaluation that ranks asset managers on their ESG performance. BlackRock ranked third-tier in Morningstar’s four-tier calculus. That’s just not good enough. But there’s reason to hope that the company’s actions will soon keep pace with its CEO’s rhetoric.

Fink’s well-placed jawboning about ”inclusive capitalism” -- along with “corporate purpose” and “social license” -- has captured the imagination of mainstream investors. To his credit, he’s also making promising decisions at his firm. BlackRock has now joined the Climate Action 100+ investor coalition and started disclosing proxy votes and the rationale behind them on its website ahead of the SEC’s annual reporting deadline for fund voting records. One would hope that such transparency at the world’s largest asset manager will naturally lead to greater accountability.

My book Profitably Socially Responsible Investing? (Institutional Investor Books, London) encourages selecting investments that directly reflect and promote an individual investor’s core values or an institutional investor’s mission. Investors who back “virtuous” companies thereby mitigate investment risks, realize better financial returns, and ultimately help effect positive change in corporate boardrooms. Larry Fink and I agree that those objectives are worth pursuing.

We invite you to reach out to Marc Lane, in confidence, to consider how your investment portfolio might better be aligned with your personal values or your institution’s mission. He can be reached at 312/372-1040 or mlane@marcjlane.com.


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