Every year, Larry Fink, the CEO of BlackRock, the world’s largest investment manager, writes to business leaders. And since BlackRock controls 8.7 trillion dollars worth of assets, when he asks the companies the fund manager invests in to jump, they say; “Yes Sir, how high?” Now BlackRock is proclaiming the importance of climate policy and ESG (environmental, social and governance) with a hint that if companies want BlackRock money in the future, they had better start honing their ESG credentials.
“We know that climate risk is investment risk,” said Fink, “But we also believe the climate transition presents a historic investment opportunity.”
Part of Fink’s argument is that technologies such as better data management and processing is making it easier for investment managers to track how climate-friendly their portfolio companies are. Fink said: “Not long ago, building a climate-aware portfolio was a painstaking process, available only to the largest investors. But the creation of sustainable index investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.”
Fink also argued that the pandemic has focused minds and created a greater understanding that the corporate world must be more aware of the broader social consequences of what it does — and indeed, what it doesn’t do. He said: “I believe that 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.”
Larry Fink. Image credit: Wilson Center
Perhaps this greater awareness of the importance of ESG was happening anyway, but just as the pandemic has accelerated the adoption of digital, it is also accelerating the adoption of ESG.
As for the move towards carbon net-zero — it is becoming increasingly obvious that this needs to happen rapidly — failure to achieve net-zero within the next few decades may pose an existential threat to our species.
Companies that get this and apply environmental thinking in their approach will, or so BlackRock appears to believe, be ultimately more successful than companies that don’t, or are slow to adopt.
It seems the ideas of how companies can benefit from disruptive technologies are analogies to how they can benefit from the opportunity created by becoming more environmentally conscious. Maybe companies that are slow to adopt ESG, or as Fink put it on the BBC this morning, “are in denial,” are the future Kodaks and Blockbusters.
Techopia would like to coin a phrase to describe the importance of this greater awareness — ESG by design, meaning putting ESG at the core of corporate policy.