In his standing annual letter released this week, BlackRock CEO Larry Fink has committed to supporting the goal of net zero greenhouse gas emissions by 2050, and called for organisations to disclose their plans for how their business models will also support a net zero economy.

BlackRock’s assets under management total USD 6.9 trillion, bringing weight and influence to CEO Fink’s annual letters for investors and investees alike.

Building on his assertion in 2020 that “climate risk is investment risk”, Fink notes that “the climate transition presents a historic investment opportunity.”

But those investment opportunities won’t be possible without sustainable investment options. As more of those come to the fore, Fink envisions a “tectonic shift” as technology and data allow for more investors to push capital towards sustainability-focussed companies.

Palladium Managing Partner Jose Maria Ortiz agrees. “2021 will see a huge deployment of capital,” he predicts. “Industries will develop and grow in response to the ambitious climate targets set by the global community… and building a sustainable investment ecosystem that inspires growth over time will be key.”

The Net Zero Transformation

Achieving the net zero economy by 2050 will require building and reshaping our global economy into one that emits no more carbon dioxide into the atmosphere than it removes. According to the World Economic Forum’s 2020 Green Horizons Summit, it’s an achievable goal, but will come at a cost. Some estimate that it would take about 1.5 per cent of the global GDP to deliver net zero carbon emissions in the next thirty years.

Cost aside, according to Fink, this massive transition will only be accomplished “with leadership, coordination, and support at every level of government, working in partnership with the private sector to maximize prosperity.” He adds that it can only be considered successful if it is just, equitable, and protects all people’s livelihoods.

As COVID-19 is exposing stark inequities across global economies, Fink stresses the need for this transition to keep in mind vulnerable communities and developing nations, as many are already susceptible to some of the worst impacts of climate change.

Likewise, Palladium Director Eduardo Tugendhat is glad to see the focus on climate change, but offers up a warning to organisations making the shift to keep the people and communities affected by the transition in mind.

“The risk of a pure focus on climate change is that companies may forget that not only is there already tremendous inequality, but that the new strategies will cause enormous disruptions for these already vulnerable communities,” he says.

Tugendhat suggests an Inclusive Growth Framework for building net zero strategies, explaining that “a more people-centric approach allows for strategies and solutions that bring about business, socio-economic and environmental outcomes.”

Building a Healthier Economy

Initiating this change won’t happen overnight and Fink notes that investors will need insights into how companies are preparing both for the physical threats of climate change and the global economy’s shift to net zero. As more leaders call for access to better data and analysis, he proposes that the Task Force on Climate-related Financial Disclosures (TCFD) be adopted by large private companies as well as public ones.

Established in 2015 by the Financial Stability Board, the TCFD provides climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. Though the recommendations are voluntary, Fink’s call for its adoption indicates a larger more broad shift towards improved climate disclosures.

Ultimately, Fink’s message is aligned with the current trend toward stakeholder capitalism and triple-bottom line strategies: “The companies that embrace this challenge – that seek to build long-term value for their stakeholders – will help deliver long-term returns to shareholders and build a brighter and more prosperous future for the world.”

For more information, contact info@thepalladiumgroup.com.