Larry Fink 2020 Letter to CEOs
Dear Clients and Friends,
At the beginning of every year, Larry Fink, the CEO of BlackRock Investment Management, publishes a letter to the CEOs of America’s largest corporations. As a fiduciary, he stresses the importance of focusing on long-term growth rather than on short-term earnings to the investing public. While the latter may influence near-term swings in a company’s stock price, the former encourages the long-term health and sustainability of the company.
In the past, Mr. Fink has touched upon the importance of corporate action regarding social and environmental issues. This year, it is the focal point of his exposition. Mr. Fink believes that environmental risks will have a direct correlation to investment risks in the very near future. For this reason, it is important for corporations to be as transparent with their social and environmental policies as they are with their financial statements. We at MOR Wealth Management agree wholeheartedly with Mr. Fink’s stance. For this reason, we share with you an excerpt of his annual letter and strongly urge you to read it in its entirety.
As an asset manager, BlackRock invests on behalf of others, and I am writing to you as an advisor and fiduciary to these clients. The money we manage is not our own. It belongs to people in dozens of countries trying to finance long-term goals like retirement. And we have a deep responsibility to these institutions and individuals – who are shareholders in your company and thousands of others – to promote long-term value.
Climate change has become a defining factor in companies’ long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance...
Climate Risk Is Investment Risk
As a fiduciary, our responsibility is to help clients navigate this transition. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward...
Improved Disclosure for Shareholders
The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term. But, as we have seen again and again, these actions that damage society will catch up with a company and destroy shareholder value. By contrast, a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability...
Accountable and Transparent Capitalism
Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges – the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis. Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital...
As we approach a period of significant capital reallocation, companies have a responsibility – and an economic imperative – to give shareholders a clear picture of their preparedness. And in the future, greater transparency on questions of sustainability will be a persistently important component of every company’s ability to attract capital. It will help investors assess which companies are serving their stakeholders effectively, reshaping the flow of capital accordingly. But the goal cannot be transparency for transparency’s sake. Disclosure should be a means to achieving a more sustainable and inclusive capitalism. Companies must be deliberate and committed to embracing purpose and serving all stakeholders – your shareholders, customers, employees, and the communities where you operate. In doing so, your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole.
The idea that environmental changes will have a direct impact on asset pricing is staggering, but it is not unrealistic. We stand firmly behind the idea that companies should be more transparent with their intentions in regards to the environment. As most of you know, we here at MORWM do not shy away from this responsibility, and we are proud to be partnered with clientele who feel the same way.
We hope you found this reading as enlightening and encouraging as we did, and we wish you all a very lovely weekend.
Daniel Levinson, CFP® Financial Planning Associate
MOR Wealth Management, LLC
1801 Market Street, Suite 2435 Philadelphia, PA 19103 P: 267.930.8303 | c: 856-906-4888 | f: 267.284.4847 |
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