As a tech entrepreneur, I spend a lot of time with professional investors. Some are former entrepreneurs and operators, but most have invested professionally their entire careers after stints in finance and investment banking. A small, but growing, minority are impact-focused. An even smaller subset invests in sustainability.
That changed dramatically last week with the annual CEO letter from BlackRock CEO, Larry Fink. BlackRock is the world’s largest Asset Manager. For the past two years, Larry has emphasized how important purpose is to a company, something past Saturday Sparks have celebrated. This year’s letter was about the climate crisis. The letter was notable because BlackRock is not known for being that forward-thinking on climate.
In his letter, Larry says that sustainability will reshape finance as we know it. BlackRock will take several steps, including: make sustainability integral to portfolio construction and risk management; exit investments that present a high sustainability-related risk, such as thermal coal producers; launch new investment products that screen fossil fuels; and strengthen their commitment to sustainability and transparency in their investment stewardship activities. Ceres CEO Mindy Lubber called the letter a “major turning point.” Bill McKibben called the decision “seismic” and said if you wanted to feel a little hopeful then today was your day. Critics note that it’s a little late.
How do I know this letter matters? A day after it’s publication, I sat in a room with investors. I told our story, as I have every year to this group, for nearly seven years. Instead of questions about whether sustainability is a niche business, I got nods. Afterwards people said, “this is going to be huge,” which I’ve been saying for years to a small group of avid supporters and a lot of people who just didn’t agree. I got emails from bankers, with links to the article. On a call with a private equity firm who has been following us for awhile, the first thing the partner cited was Larry’s letter as a signal of a major “macro-economic trend” in our favor. I’m not sure I love the idea of a burning planet as a macro-economic trend, but I appreciated his renewed enthusiasm for what we do.
People are social creatures and we often decide things are true, or important, by evaluating who else shares that perspective. Psychologists call this social influence. Within the realm of social influence, there are certain voices that become social catalysts, having an outsized impact relative to others with similar viewpoints.
Greta Thunberg was the unlikeliest of social catalysts to galvanize a mass uprising among teenagers to support climate action. It started with sitting alone outside Swedish parliament. Her catalyzing moment, in my opinion, came when she verbally chastised a room of the most powerful adults in the world at Davos. She put words to feelings every teenager on this planet probably shares when she said, “I don’t want you to be hopeful. I want you to panic. I want you to feel the fear I feel every day. And then I want you to act.” When she spoke, teens everywhere started to listen. Then they followed her lead and took to the streets.
Larry is the social catalyst of the finance and investor world and that’s why this letter matters. It’s not just what BlackRock is going to do, it’s that people will follow BlackRock’s lead at a rate and scale that ESG investment fund managers could never catalyze. It reminds me of that old EF Hutton commercial. “When BlackRocks talks, people listen.”
Quote of the Week: Every government, company, and shareholder must confront climate change.Larry Fink