The CEO of the asset management behemoth set out his views on how capitalism can be a "catalyst" for change in areas such as reducing carbon emissions and providing innovative business models with capital.
The chief executive of BlackRock, the world’s largest fund manager with more than $10 trillion of assets, yesterday reiterated his belief in companies’ needing to get on board the “net zero” train to curb global warming, while also arguing that he’s not pursuing a “woke” agenda.
In an annual missive to shareholders and firms in which BlackRock invests, Larry Fink made his comments at a time when large holders of capital – not just banks – are using their financial clout, they say, to push for change in how firms are run, what they produce and how they affect the wider world. The vogue for environmental, social and governance themed (ESG) investing continues unabated. His letter was entitled "The Power of Capitalism."
“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not 'woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism,” Fink wrote. “In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long term. Make no mistake, the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success.”
The CEO did not spell out what he understood the term “woke” to mean. The term is a play on the idea of people "waking up" from certain previous states of presumed ignorance about topics such as gender and race relations. The term is sometimes an alternative to what can be dubbed “political correctness” and is usually seen as a Leftwing phenomenon.
(This news service has a new programme, its Wealth For Good Awards, designed to highlight the work wealth managers are doing to drive change around the environment, society and governance. To find out more about the awards, click on this link. Submissions close on 4 February. Winners, finalists and commended entries will be celebrated in May this year.)
Fink noted that COVID-19, associated government lockdowns and other measures have accelerated the progress of digital technology, but also widened wealth inequalities and eroded trust in traditional societies.
“This polarization presents a host of new challenges for CEOs. Political activists, or the media, may politicise things your company does. They may hijack your brand to advance their own agendas. In this environment, facts themselves are frequently in dispute, but businesses have an opportunity to lead. Employees are increasingly looking to their employer as the most trusted, competent, and ethical source of information – more so than government, the media, and NGOs,” Fink wrote.
He observed that the pandemic has upended the relationship between firms and their employees.
“No relationship has been changed more by the pandemic than the one between employers and employees. The quit rate in the US and the UK is at historic highs. And in the US, we are seeing some of the highest wage growth in decades. Workers seizing new opportunities is a good thing: It demonstrates their confidence in a growing economy,” he said.
BlackRock remains committed to the “net zero” objective of reducing carbon emissions and switching to different energy sources, Fink insisted. The push away from carbon energy sources such as oil and gas remains controversial, particularly at a time when energy prices have soared, with some commentors fingering “Green” policies as a cause of the problem.
“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions,” Fink said.
“The transition to net zero is already uneven with different parts of the global economy moving at different speeds. It will not happen overnight. We need to pass through shades of brown to shades of green. For example, to ensure continuity of affordable energy supplies during the transition, traditional fossil fuels like natural gas will play an important role both for power generation and heating in certain regions, as well as for the production of hydrogen,” he continued.
Debate on the proper function of corporations is not a settled affair but has moved over the past half a century from when the late former Chicago economist and Nobel Prize winner, Professor Milton Friedman, wrote that businesses should focus on shareholder value creation rather than wider social, environmental or political issues.