A Net zero economy is inevitable, writes Larry Fink in his 2021 annual letter to CEOs. Companies must prepare now to develop and disclose a net zero transition plan.
When Larry Fink’s released his 2020 Letter to CEOs last year, it was heralded as a turning point for corporate climate action. Though Fink, the Chairman and CEO of the world’s largest asset manager, Blackrock, had been in the practice of writing an open letter to CEOs for years, this time was different. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” he announced.
Those of us in corporate sustainability were energized to see the stars align to refocus on sustainability after years of political and public inertia. Then the COVID-19 pandemic hit, and we worried how (or if) we could grapple with two global crises simultaneously.
“The conventional wisdom was that the crisis would divert attention from climate,” writes Fink in his 2021 letter. “But just the opposite took place, and the reallocation of capital accelerated even faster than I anticipated.”
Blackrock’s letter ups the ante on the urgency of climate change, and the need for companies to develop a net zero transition plan. “There is no company whose business model won’t be profoundly affected,” says Fink. “We are asking companies to disclose a plan for how their business model will be compatible with a net zero economy. …We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.”
Fink echos the call of SASB, CDP, GRI, IIRC and CDSB to transition to one central global reporting framework. As industry accelerates progress towards Net Zero, the emphasis on high-quality, verifiable, and consistent data will become increasingly important to demonstrate progress to boards, shareholders, and the public.
Fink highlights how high-quality data is critical in sustainable finance reporting and disclosure.“Better technology and data are enabling asset managers to offer customized index portfolios to a much broader group of people – another capability once reserved for the largest investors.”
In recent years, the technologies that enable the capture and reporting of sustainability data have helped companies plot a faster and more cost effective pathway to net zero.
As sustainability reporting standards become more widely scrutinized, it will be critical to “move quickly to issue them, rather than waiting for regulators to impose them,” says Fink. The journey to net zero will require consistent, reliable, and finance-grade ESG data – this is especially important for the ‘E’, the environmental and emissions performance of an organization. Those who can establish a reliable data foundation for GHG accounting early on will reap the rewards of an accelerated net zero pathway.
“The companies that embrace this challenge” writes Fink, in closing, “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.”