2019 Larry Fink Letter:
"We are on the edge of a fundamental reshaping of finance"

January 19th 2020 - Edition #19

Larry Fink, the founder and chief executive of BlackRock, has the habit of addressing a yearly letter to all their CEOs around the globe, emphasising the key issue for them to embrace. BlackRock is the largest in its field, with nearly $7 trillion under management.

Fink’s annual letter to the chief executives of the world’s largest companies is closely watched and his 2020 letter was out this week.

In 2018 his message definitely drove the concept of Purpose into the strategic agenda of most Corporations around the globe. Highlighting one of the statements at the time: "Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate".

Then in 2019 the letter had the enormous merit of following the same path, deepening and confirming the concept that “profits and purpose are inextricably linked”. Some key points he made:

• "Unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues”.
• “Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders”.
• ‘’Companies that fulfil their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail”.

In this year’s letter, the key message is that BlackRock will make investment decisions with environmental sustainability as a core goal, and would begin to exit investments that “present a high sustainability-related risk,”. Other important messages:

• “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance (…) and the evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
• “Even if only a fraction of the science is right today, this is a much more structural, long-term crisis,”
• “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,”
• there will be “a major shift, much sooner than many might imagine, in the way money will be allocated. This dynamic will accelerate as the next generation takes the helm of government and business. As trillions of dollars shift to millennials over the next few decades, as they become C.E.O.s and C.I.O.s, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.”

And Fink did not forget the good old approach of “carrot” (“Ultimately, purpose is the engine of long-term profitability”) and “stick” (“We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them”).

The letter also emphasises the link to the previous letters on Purpose. “A company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders”.

Larry Fink has not always been the first to address environmental or social issues, but his annual letter has the influence to change the conversations inside boardrooms around the globe. As they say in Wall Street "When Black Rock speaks, the world listens".

Have a great and impactful week!

Nuno Moreira da Cruz
Executive Director
Center for Responsible Business and Leadership

The Center for Responsible Business & Leadership has the main purpose of contributing for Sustainability and Responsible Leadership to become part of the “way we do things in our planet”. Find out more here.

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"Have a Great and Impactful Week!" is sent out every Sunday at 5PM, bringing new insights on the world of corporate responsibility, sustainability and responsible leadership. It is often signed by the Center's Executive Director, Nuno Moreira da Cruz.