News From Davos: Larry Fink Tries Rallying Fellow CEOs to Combat Climate Change

BlackRock CEO Larry Fink

Larry Fink, from his perch as head of the world’s largest asset manager, has challenged companies to help the world reach “net zero” greenhouse gas emissions.

In his annual letter to fellow CEOs and in a virtual appearance at Davos, Fink called on them to create and make public their plans for meeting this climate objective.

In 2020, “a pivotal year, we saw an extraordinary shift in how investors invested across every industry,” as they shunted money into sustainability endeavors, he told a panel at the Worldwide Economic Forum in the famed Swiss town. When the pandemic struck last March, many expected investing interest in climate opportunities to lag, he said. Instead, he added, it surged 96%.

For Fink, net zero means eliminating net greenhouse gas emissions by 2050, achieved by limiting global warming to no more than 2 degrees Celsius above preindustrial averages. Last year, he roiled the corporate world with his letter telling his peers to improve their commitment to sustainability goals, warning them that BlackRock would dump stocks where management didn’t go along.

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The chief of BlackRock (assets under management: nearly $9 trillion) highlighted a Davos panel on stakeholder capitalism—a concept he also championed in his CEO letter last year. This means broadening the purpose of corporations beyond shareholder return to employees and the world at large. And environmental goals are a big part of that notion.

Failing to meet investors’ increasingly green expectations will lead to “a widening gap” between companies that meet those preferences and those that don’t, he warned.

Another CEO on the Davos panel, Saleforce’s Marc Benioff, lauded the contribution of companies to fight the coronavirus and to build a more environmentally friendly world. “CEOs are the heroes,” he said. “Governments didn’t save us.” Businesses were the providers of personal protective equipment and the developers of the vaccines, he stated.

Meeting sustainability goals will cost $6 trillion a year, said Brian Moynihan, Bank of America’s CEO. “And the only way you’ll do that is if private companies are driving it.” Moynihan declared that his giant bank has helped its employees during the pandemic by boosting their health care coverage and ensuring branch workers, who deal with the public, are protected.

Measuring how companies follow the ideals of environmental, social, and governance (ESG) investing is crucial, he said. The BofA chief lauded the Davos forum’s 21 new ESG metrics, created in partnership with the four accounting firms, plus 62 companies, with the goal of providing transparency.

Fink’s BlackRock has been focused more and more on challenging corporate boards that it thinks haven’t measured up to ESG ideals and stakeholder concerns. Last year, the firm voted against 69 companies and against 64 directors for climate-related reasons, and it placed 191 companies “on watch.”

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Tags: Bank of America, BlackRock, Brian Moynihan, Davos, greenhouse gases, Larry Fink, Marc Benioff, Salesforce, stakeholder capitalism, Sustainability, Worldwide Economic Forum

Editor’s note: On Tuesday, a special World Economic Forum session was held in Mandarin. Seeking deeper perspective, CIO asked special members of the ISS-ESG team* to report back on insights they gathered from the session.

On Tuesday, Sina Finance held a roundtable dialogue at the World Economic Forum in Davos, Switzerland, discussing how environmental, social, and governance (EGS) factors will develop in China in a post-COVID-19 era.

The roundtable dialogue gathered representatives from different key players in the ESG field in China—including investors, corporations, consultancies, and ESG data providers—providing great insight to what we should expect from ESG investing in 2021 in China.

Here are the main takeaways:

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The pandemic has brought momentum to ESG investing in China.

All the panelists agreed that the outbreak of the pandemic last year brought momentum to the development of ESG issues by having a negative impact on society and daily life.

According to Ivan Tong, principal partner of climate and sustainability services in the great China region at E&Y, investors in China have broadened their perspectives, moving from focusing exclusively on financial performances to also taking into consideration nonfinancial performances when undertaking investments, as consideration of mere financial performances in a bust does not differentiate the investments much or show their capacity for risk.

Thanks to the wake-up call of COVID-19, Chinese companies also learned to inspect nonfinancial risks to guarantee a business’ continuity under unusual circumstances, (e.g., when it’s facing social and environmental challenges).

The strong regulatory framework in China paves the way for ESG development.

Along with the proposals on green recovery supported by governments and international organizations worldwide, China has accelerated its own approaches for a sustainable economy, involving stakeholders from different sectors, which paves the way for making ESG approaches more mainstream.

Chinese President Xi Jinping pledged that China would reach its peak CO2 emissions before 2030 and become carbon neutral by 2060 at the UN General Assembly last September. The International Institute of Green Finance (IIGF) of the Central University of Finance and Economics (CUFE), led by Professor Wang Yao, has also published its China ESG White Book, together with Sina Finance, which initiated the roundtable dialogue as the media partner of Davos Agenda.

Financial regulators in China have also started to shape a positive environment for making ESG policies mainstream. Administrative institutions, including the People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC), have jointly published guiding opinions on promoting the high-quality development of banking and insurance industries in Q4 2019 and guiding opinions on promoting investment and financing in response to climate change in Q4 2020.

According to Wang, CBIRC is working on outlining the mandatory disclosure of ESG performance from public companies, aiming at promulgation toward the end of 2021.

Investors in China have increasingly recognized the importance of ESG performance.

Wang shared that in 2020, 61% of public ESG funds exceeded market return. ESG performance can be a key parameter for measuring the ability of companies’ sustainable growth. The topics are also extended to health care and biodiversity, thanks to the pandemic. While ESG investments are being more widely considered in the financial markets in China, in the future, ESG approaches will also be considered in Chinese government spending and foreign investment such as the Belt and Road Initiative.

Since last year, more and more investors in China have realized that ESG investing is not only about kindness and conscience, but also is an important risk factor. Peter Qiu, president of Deutsche Bank (China), told the session that five years ago, ESG investing in China was still viewed more from the perspective of reputation or legal risk management. Today, many of the bank’s clients have clearly defined ESG business strategies and ESG financing is becoming a key part of their main services.

Chinese companies’ long-term value creation needs ESG.

Yudong Chen, president of Bosch China, shared that Bosch China has realized a significant increase in sales of renewable energy-related products even during the pandemic. This shows that the global goal of achieving sustainable development has brought business opportunities to many companies. The pandemic has also reminded companies to extend ESG measures from their own operations through their supply chains, in order to maintain business continuity, especially in tough times like the pandemic.

Chinese companies are also motivated to integrate ESG approaches because they are under pressure to comply with the carbon measures, (i.e., hitting China’s carbon peak before 2030 and becoming carbon neutral by 2060). Ivan Tong shared that last year, E&Y’s ESG-relevant businesses grew rapidly in contrast to the gloomy economy. First investors and then companies started to realize the materiality of ESG investing in long-term business returns.

Many mainland-listed Chinese companies are still concerned about the short-term costs of integrating ESG approaches into their practices, and some are waiting for a mandatory regulation to get started with ESG approaches.

However, as Wang pointed out, the pandemic made many Chinese companies realize that improving ESG performance in accordance with precautionary principle is imperative to sustain value creation. The later a company starts, the more costly it can be from both risk management and compliance perspectives.

‘China will become the world’s largest source of green assets.’

Compared with developed markets, China introduced the concept of ESG parameters relatively late, but the development has gained momentum rapidly. Nonetheless, there are still challenges in ESG practices in China. According to Qiu, firstly, the understanding and practical experience of ESG approaches are far from enough in China; secondly, the “E” in ESG has received the most attention in China so far, and the “G” and “S” in ESG require the same level of attention.

Yet, following companies listed in Hong Kong, where mandatory climate- and governance-relevant disclosures and voluntary social disclosures have been introduced, companies from mainland China will soon bridge the gap of ESG reporting subject to the upcoming disclosure requirements planned for this year. Various stakeholders, including financial authorities, academic institutions, investors, corporations, rating providers, and consultancies, should work together to promote a wide range of market education on ESG practices and to foster the development of sustainability professionals.

China is becoming the main battlefield of global ESG financing, as the policy environment now allows two-way cross-border participation in green finance and climate-friendly investment. Qiu says he believes China will become the world’s largest source of green assets and one of the most important investors in sustainability.

Haiyu Ding, associate for ESG ratings and research at ISS ESG, is also the in-house expert for biodiversity and water topics, as well as for semiconductors and electronic components sectors.

Yijing Zhang, analyst for ESG rating and research at ISS ESG, is also the in-house expert for circular economy topics, as well as for retail and packaging sectors.

*ISS is the parent company of CIO.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.