BlackRock Chair & CEO Larry Fink's always eagerly anticipated annual letter to CEOs: “The Power of Capitalism” focuses largely on BlackRock’s view of stakeholder capitalism, and the changes in dynamics among companies, employees, and society that have been prompted by the pandemic.
Seemingly responsive to criticism, Fink asserts that rather than being “woke,” stakeholder capitalism is merely the traditional notion of capitalism that reflects the need to take into account the full range of stakeholders in order to achieve long-term profitability and shareholder value. According to the letter, as trust in traditional institutions declines, employees and other stakeholders increasingly are looking to companies for information and inspiration, which is why BlackRock believes it is important that CEOs speak out on social issues that are relevant to their companies’ long-term success. The letter reiterates BlackRock's focus on companies' articulating and demonstrating their corporate purpose to the benefit of various stakeholders in furtherance of long-term shareholder value creation. BlackRock believes that a well-articulated purpose will temper potential backlash associated with diverse stakeholder views on discrete issues.
More specifically, the letter outlines disclosure expectations on the workforce in view of the trend toward the changed relationship of employer to employee characterized by a host of employee expectations that either did not exist or were not recognized years ago:
At BlackRock, we want to understand how this trend is impacting your industry and your company. What are you doing to deepen the bond with your employees? How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation, and productivity? How are you ensuring your board has the right oversight of these critical issues? Where and how we work will never be the same as it was. How is your company’s culture adapting to this new world?
The letter further focuses on the changes that will be effected by the transition to a net zero environment, which will include those companies that “hop on the bandwagon” and leave behind those that don’t:
Our question to these companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?
To better understand whether and how companies are moving in the right direction, BlackRock is looking for companies to set short-, medium-, and long-term targets for GHG emissions reductions and reiterating its call for TCFD-aligned reporting. Notably, like Vanguard, BlackRock does not support divestment from fossil fuel industry because it is portfolio-focused and does nothing to advance climate change impacts globally. As to ESG issues more generally, BlackRock is looking for companies to explain on an ongoing basis their positioning and progress on business-relevant ESG practices and policies in furtherance of “deliver(ing) on their responsibility to shareholders.“
The letter also reiterates BlackRock’s initiative to increase the number of its clients that may opt to vote their proxies (we reported on here), and commits to further expansion of that opportunity to individual investors.
See these articles: “BlackRock CEO Larry Fink Says Nothing ‘Woke’ About Stakeholder Capitalism” and “BlackRock CEO Larry Fink Infuriates Republicans and Climate Activists Alike” (Bloomberg Green); "BlackRock chief urges CEOs to treat workers well" (TheHill); “Larry Fink CEO Letter: Stakeholder Capitalism is Capitalism” (ESG Today); “BlackRock’s Climate Stance Is About Profits, Not Politics, Larry Fink Says” (WSJ); and “BlackRock's Larry Fink pushes CEOs to participate in net-zero” (Pensions & Investments). Additional analyses of the letter will be posted real-time on our Institutional Investors page »BlackRock.