Larry Fink, Chairman and CEO of BlackRock, annually addresses CEOs on behalf of BlackRock’s clients, who are predominantly long-term investors saving for retirement. This 2022 letter emphasizes the evolving landscape of business and investing, focusing on stakeholder capitalism, the changing world of work, the rise of new capital sources, and the critical importance of sustainability.
Stakeholder Capitalism: The Foundation for Long-Term Value
Fink underscores that stakeholder capitalism isn’t a political agenda but rather the core of capitalism itself. He argues that successful companies prioritize mutually beneficial relationships with their employees, customers, suppliers, and communities. This approach drives efficient capital allocation, sustained profitability, and long-term value creation. In an interconnected world, companies must be valued by their entire stakeholder ecosystem to deliver consistent returns for shareholders.
Navigating the New World of Work
The pandemic has fundamentally reshaped the relationship between employers and employees. Record quit rates and wage growth reflect workers’ confidence and desire for more flexibility and meaningful work. Companies that fail to adapt risk high turnover costs, decreased productivity, and a weakened corporate culture. Fink highlights the need for CEOs to create environments that attract and retain talent, addressing issues beyond compensation, such as mental health, racial equity, and childcare.
The Rise of New Capital and Market Disruption
The unprecedented availability of capital, with global financial assets reaching $400 trillion, has democratized access to funding. Innovative startups now have the resources to challenge established market leaders. Fink urges CEOs to understand this dynamic landscape and the diverse sources of capital to remain competitive. BlackRock, as a long-term investor, seeks to identify and invest in the most dynamic companies, both established and emerging, poised for sustainable growth.
Sustainability: Leading the Transition to Net Zero
The global energy transition is a defining factor for long-term value creation. Sustainable investments have surged to $4 trillion, reflecting a tectonic shift in capital allocation. Fink challenges companies to lead the transformation to a net-zero world, emphasizing the immense investment opportunities in decarbonizing technologies. He highlights the auto industry’s rapid shift towards electric vehicles as a precursor to the widespread disruption that will reshape every sector.
The Importance of Climate Action and Stakeholder Engagement
Fink reiterates that BlackRock’s focus on sustainability stems from its fiduciary duty to clients. He urges companies to establish clear targets for greenhouse gas reductions and disclose their progress, aligned with the Task Force on Climate-related Financial Disclosures (TCFD). While acknowledging the uneven pace of the net-zero transition, he stresses the need for continued investment in renewable energy and decarbonization technologies. Divestment from fossil fuels is not a universal solution; rather, supporting companies actively transitioning their businesses is crucial.
Empowering Investors and Advancing Corporate Governance
Shareholder interest in corporate governance is increasing. BlackRock is leveraging technology to give more clients, including institutional investors, a voice in proxy voting decisions. Fink envisions a future where all investors, including individuals, have the option to participate in this process. He encourages corporate leaders to advocate for greater direct involvement in proxy voting with their asset managers.
BlackRock’s Commitment to Stakeholder Capitalism
BlackRock is launching a Center for Stakeholder Capitalism to foster research, dialogue, and debate on the evolving relationship between companies, their stakeholders, and shareholder value. This initiative will bring together CEOs, investors, policymakers, and academics to share insights and best practices. Navigating the complexities of stakeholder capitalism requires purpose-driven leadership. By remaining true to their core purpose and adapting to the changing landscape, companies can deliver durable returns and harness the power of capitalism for the benefit of all.
FAQ
What is stakeholder capitalism?
Stakeholder capitalism is a business approach that prioritizes the interests of all stakeholders, including employees, customers, suppliers, communities, and shareholders. It emphasizes mutually beneficial relationships and long-term value creation.
How is the world of work changing?
The pandemic has accelerated trends towards remote work, increased employee expectations for flexibility and meaningful work, and a greater focus on issues like mental health and racial equity.
Why is sustainability important for businesses?
Sustainability is crucial for long-term value creation. Investors are increasingly prioritizing sustainable investments, and businesses that fail to adapt to the energy transition risk being left behind.
How can investors have a greater say in corporate governance?
BlackRock is empowering more clients to participate in proxy voting decisions, and encourages greater transparency and engagement between companies and their shareholders.
We encourage readers to share their thoughts and questions on stakeholder capitalism and its implications for the future of business and investing.
