In his standing annual letter released last week, BlackRock CEO Larry Fink has doubled down on his message of sustainability and the need to achieve net zero. But rather than calling on CEOs to reimagine how business is done in the time of ‘build back better’, he’s leaning on the status quo – capitalism – to get the job done.

“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” Fink assures his fellow CEOs. “Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.”

BlackRock’s assets under management total USD 9.4 trillion, bringing weight and significant influence to Fink’s annual letters for investors and investees alike. But this year’s message isn’t particularly new. Two years ago, he made a splash when he wrote that “climate risk is investment risk” and though there’s been a shift towards and a steep rise in sustainable investments, the conversation is the same; we all have a part to play in decarbonising the world, including for-profit companies.

As Fink points out, in our capitalist economy, the pursuit of profit is what moves markets, “and long-term profitability is the measure by which markets will ultimately determine your company’s success.” Where does that leave sustainability?

For Palladium Director Eduardo Tugendhat, profit and sustainability are inextricably linked. “You can’t have successful businesses without successful societies, and you can’t have successful societies without the economic opportunities that businesses bring.” Sustainability isn’t just about compliance or moral obligation, and it goes well beyond box-ticking; “it’s the only way for businesses to realise their long-term commercial goals,” Tugendhat explains.

Fink offers a dire warning to organisations adjusting to the ‘new world’ of work environments in a post-COVID-19 economy: “Companies not adjusting to this new reality and responding to their workers do so at their own peril.” Thus putting the focus on adjusting to market demands and employee needs in order to remain profitable, rather than shifting to sustainable practices for longevity that goes beyond profits.

But is this the only way to induce capitalists and for-profit organisations to shift to sustainability?

Capitalists for Sustainability

According to Fink, a critical part of the shift towards net zero will require “unprecedented investment in decarbonisation technology” across all markets in both the developed and developing world.

While this is critical, ensuring that proper capital is invested into projects focused on removing technology from the atmosphere, the focus on technology leaves out one key aspect of moving towards a net zero economy – investing in nature-based solutions. Long believed to have unreliable returns, projects that invest in nature are now proven to be both profitable and capable of achieving massive carbon offsetting outcomes.

“Net zero targets can only be achieved through a comprehensive approach to changing the ways we produce, consume, tax and value natural resources,” suggests Jose Maria Ortiz, Palladium Managing Director. “It’s never been more imperative than the current moment to focus energies and investments on forest preservation.”

But getting to net zero, either via decarbonisation technology, nature-based solutions, or improved ESG accounting, will require a massive shift across sectors in the ways of doing business. For Palladium CEO Christopher Hirst, that shift can and should be lead by the private sector. “Change will not come about from politicians and global leaders; instead, it will be up to the private sector, financiers and citizens to step in and drive change.” But this year, Fink asserts that while capitalism has the power to shape society, it cannot lead the way. “We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets.”

So, what’s the right answer?

“This was the most disappointing part of Fink’s letter to me,” says Palladium Director of Communications Elizabeth Godo. “The time for this debate is so, so long past. We know that what’s required are partnerships between both the private and public sectors, with strong leadership on both sides – and Fink even points to the speed of the COVID-19 vaccine as an example of the power of public and private working together. This felt like passing the buck to stay in the good graces of his fellow CEOs lest they worry he’s gone too radical. We need stronger leadership than that.”

Hirst agrees with the power of partnerships, citing “numerous examples emerging of partnerships finding new and innovative ways to finance the restoration of nature, to sequester and neutralise carbon emissions, and value carbon in a way that makes it an attractive investment.”

Ultimately, at a time when economies are in flux, societies are struggling with the ramifications of COVID-19, and we all have the opportunity to ‘build back better’, Fink’s message is to rely on the economic drivers and systems currently in place.

For more information, contact info@thepalladiumgroup.com.