BlackRock CEO Larry Fink has used his annual letter to CEOs to warn about the risks of being left behind in the transition to net zero.
Noting that most stakeholders now expected companies to play their part in decarbonising the economy, Mr Fink said that few things would impact the capital allocation decisions of companies more than how effectively they are able to navigate the global energy transition.
"I believe the decarbonising of the global economy is going to create the greatest investment opportunity of our lifetime," wrote Mr Fink.
"It will also leave behind the companies that don’t adapt, regardless of what industry they are in. And just as some companies risk being left behind, so do cities and countries that don’t plan for the future. They risk losing jobs, even as other places gain them."
Mr Fink said that the goal of stakeholder capitalism was to deliver long-term and durable returns for shareholders, and wasn’t “woke” or about politics or a social or ideological agenda.
“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” he wrote.
“That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing.”
Every company and every industry will be changed as part of the transition to net zero according to Mr Fink, with every sector transformed by new sustainable technology.
“The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – start-ups that help the world decarbonise and make the energy transition affordable for all consumers,” Mr Fink wrote.
Governments must also play their role as businesses “cannot be the climate police”.
“We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets,” wrote Mr Fink.
“They must also support communities affected by the transition, help catalyse capital for the emerging markets, and invest in the innovation and technology that will be essential to decarbonising the global economy.”
Mr Fink noted that the transition to net zero was not going to happen overnight and was progressing unevenly in different parts of the global economy.
Additionally, he said that companies would need to “pass through shades of brown to shades of green” for the transition to be successful and argued against divestment.
“Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. And BlackRock does not pursue divestment from oil and gas companies as a policy,” Mr Fink wrote.
“Foresighted companies across a wide range of carbon intensive sectors are transforming their businesses, and their actions are a critical part of decarbonisation.”
Last week, BlackRock reported its assets under management grew to US$10 trillion in Q4 2021, 15 per cent higher than a year earlier, with total net inflows of US$212 billion.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
