In January, BlackRock CEO Larry Fink delivered an open letter to his fellow C-suite leaders. In marking the investment firm’s 30th anniversary, he called for an integrated view of sustainable success:
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.
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.
By recommending that companies proactively manage social efforts, rather than simply respond to activist shareholders and proxy votes after the fact, Fink has put corporate leaders on notice that BlackRock intends to use its considerable financial muscle ($5.7 trillion in assets) in active engagement with the organizations it invests in to move away from short-term focus to the long-term view essential for sustainable results.
In his call for this active engagement:
The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own… If engagement is to be meaningful and productive – if we collectively are going to focus on benefitting shareholders instead of wasting time and money in proxy fights – then engagement needs to be a year-round conversation about improving long-term value.
Fink provides a mandate for ongoing active management of sustainability efforts that goes beyond an annual report or roundup. He also included an affirmation of corporate diversity as core to his message:
We also will continue to emphasize the importance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.
This letter has certainly gotten the attention of the financial press. Morningstar writes that it is “more evidence that this new era is upon us” while Andrew Ross Sorkin in the New York Times called it a “watershed moment on Wall Street” noting that Fink has the clout to demand that “companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.”
As sustainability professionals, Larry Fink’s letter is a welcome statement in support of the strategic lens we bring to our companies. Sharing it with C-suite and investor relations teams might be a great way to open discussions of the potential for sustainability efforts to benefit all measures of better performance – people, planets, and profit.
Christina Siun O’Connell is a sustainability and supply chain expert at UL EHS Sustainability.