31 January 2021

Fink doubles down on climate

GILES RAFFERTY, Corporate Communication and Media Advisor

Restating that climate risk is investment risk, Larry Fink, the Founder, Chairman and CEO of Blackrock, the world’s biggest and arguably most powerful investor, is calling for companies to share their plans for the transition to a net zero economy in his annual letter to CEOs.

Mr Fink started his series of ‘Dear CEO’ letters in the wake of the GFC. They are designed to highlight the issues he sees as being pivotal to creating enduring, sustainable value for all stakeholders. Blackrock controls almost US$9 trillion dollars so what Mr. Fink sees as important is worth looking at.

A Tectonic Shift in Capital Allocation

In January 2020, prior to the coronavirus pandemic, the Blackrock boss predicted markets would start to price climate risk into the value of securities, sparking a fundamental reallocation of capital. Once COVID-19 took hold conventional thinking was the crisis would divert attention from climate risk to the existential threat of the virus.

In fact, Mr. Fink notes just the opposite happened. From January to November 2020 investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. The predicted reallocation of capital was, if anything, accelerating in the face of the pandemic.

The Net Zero Transition

The changes in investor behaviour are being reflected in various policy responses to climate change around the world. In 2020 the EU, China, Japan, and South Korea all made commitments to achieve net zero emissions. Blackrock’s view is the drive towards net zero emissions will continue to build momentums in 2021 with dramatic implications for the global economy.

Mr Fink predicts there will be no company that is not be profoundly affected by the transition to a net zero economy – one that emits no more carbon dioxide than it removes from the atmosphere by 2050. The investment boss claims companies with a clear strategy for this transition will benefit while laggards will see their business and valuations suffer.  Mr Fink added that while the transition will inevitably be complex and difficult, it is essential to building a more resilient economy that benefits more people.

I have great optimism about the future of capitalism and the future health of the economy – not in spite of the energy transition, but because of it.” Larry Fink, Chairman and CEO Blackrock, January 2020

Data and Disclosure Matter

The problem for investors who are looking to prepare their portfolios for the transition to a net zero economy is the absence of a single standard by which to assess sustainability risks. Blackrock seeks to address this by asking companies to report to Task Force on Climate-related Financial Disclosures (TCFD) standards alongside the Sustainability Accounting Standards Board (SASB) standards, which covers a broader set of material sustainability factors.

Given Blackrock’s view that energy transition will be central to every company’s growth prospects, it is asking companies to disclose a plan for how their business model will be compatible with a net zero economy – one where global warming is limited to well below 2ºC and there are net zero greenhouse gas emissions by 2050.  The investment house is asking companies to disclose how this plan is incorporated into their long-term strategies and will be reviewed by the Board.

In addition, Mr Fink is calling on private companies to adopt TCFD reporting and issuers of public debt to disclose how they are tackling climate risks. The Blackrock boss has also challenged pandemic stressed Governments to undertake massive climate infrastructure projects that will need creative public-private partnerships with better ESG disclosure to attract capital.

Blackrock is practicing what it preaches. The company is carbon neutral and has committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner.

Stakeholder Capitalism Drives Better Returns

Over the course of 2020, Mr. Fink notes how purposeful companies, with better environmental, social and governance (ESG) profiles, have outperformed their peers and enjoyed a “sustainability premium”.  The investment chief says it is clear that being connected to stakeholders – establishing trust with them and acting with purpose – enables a company to understand and respond to the changes happening in the world, while those that don’t find it harder to attract customers and talent, especially as young people increasingly expect companies to reflect their values.

Within this context Mr. Fink identifies racial justice as a challenge that cannot be solved without leadership from companies, claiming a company that does not seek to benefit from the full spectrum of human talent is weaker for it. Blackrock’s expectation is companies have a talent strategy that allows them to draw on the fullest set of talent possible.

We ask that your disclosures on talent strategy fully reflect your long-term plans to improve diversity, equity, and inclusion, as appropriate by region” Larry Fink, Chairman and CEO Blackrock, January 2020

Mr Fink takes heart from the many companies that are embracing the demands of greater transparency, greater accountability to stakeholders, and better preparation for climate change. Although the Blackrock boss does point out business leaders and boards will need to show even greater courage and commitment to their stakeholders and move even faster if they are to create more jobs, more prosperity and more inclusivity. Mr. Fink concludes his letter by expressing great confidence in the ability of businesses to move to a more inclusive capitalism that builds a brighter and more prosperous future for the world.

31 January 2021

ASX introduces new ‘15% Rule’

Ben Rebbeck, Founding Director Recently, the ASX announced updates to Guidance Note 8 on continuous disclosure requirements in relation to earnings guidance. While the ASX retained the framework of its existing guidance in the update, its changes to Guidance Note 8 include a new ‘15% Rule’ regarding the impact of broker consensus earnings on guidance and earnings […]

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30 October 2020

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29 June 2020

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28 May 2020

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29 June 2019

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29 March 2019

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31 January 2019

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We entered the last reporting season in August 2018 with a high degree of optimism. That optimism was very short-lived as markets experienced a sharp sell-off in August, with actual results falling short of previous forecasts. Subsequently, news headlines have kept investors in a pessimistic mood, examples being the ongoing Brexit uncertainty and the ever-present […]

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31 January 2019

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It is important for a company to select an appropriate day when presenting its financial results.  With so many companies competing for attention from buy-side, sell-side and financial media, the correct timing of a result can be very important, especially for smaller companies. Understanding where the peaks and troughs are during a reporting season can help […]

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1 November 2018

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In July 2018, FIRST Advisers’ analysis of financial results reporting noted the continued trend by ASX 300 companies to publish their Annual Reports on the same day as their Financial Results. Termed ‘Same-Day’ or ‘Simultaneous’ reporting, we have updated our findings to see how ASX 300 companies with a June 30 balance date faired in […]

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3 September 2018

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27 July 2018

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29 June 2018

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8 September 2017

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2 August 2017

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1 August 2017

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Philippa Ellis, Governance & Investor Relations “Stories are the most powerful communication tool we have bar none” according to Andy Goodman of The Goodman Centre. We all carry stories in our heads (pre-conceptions) that strongly influence the way we view the world. These stories cause our mind to be closed to alternative viewpoints even when […]

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3 July 2017

How to Engage with Passive Investors this Reporting Season

David Whittaker, Senior Investor Relations Adviser The growth in passive investing is one of the biggest shifts occurring in global capital markets. Passive funds now hold as much as 40% of total US equity market assets, up from around 20% a decade ago*. However, very few companies are adjusting their IR strategy to take account […]

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9 June 2017

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9 May 2017

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