BlackRock is the world’s largest asset manager with $5.7trillion under management. To put that in context, the GDP of Japan is $4.8trillion. They buy government bonds, corporate bonds, equity, real estate and much more besides. As a result when Blackrock CEO speaks, people tend to listen. Governments whose bonds he buys listen, companies whom he invests in listen. It is sweet music to the ears of us at Plus Value that this year Blackrock CEO Larry Fink’s annual open letter to CEOs is about the importance of firms understanding their role in society.
Larry does not mince his words.
‘To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.’
‘Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.’
Larry comments on the short-termism present in so many companies today. Demands from shareholders for immediate returns limit a company’s ability to invest in their staff and to innovate. This will ultimately cost them, companies ruled by the will of their shareholders will provide sub-par results in the long term.
Larry promises that BlackRock will be increasingly activist in their investments. He demands that companies get better at providing shareholders with visions for long term value creation which include an understanding of societal impact. The import of this cannot be overstated. If BlackRock go from proxy voting at AGMs to activist investor as Larry promises they may just have the size to force these changes. Larry lists the question he requires boards of companies he invests in to ask themselves;
‘What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioural finance and other tools to prepare workers for retirement, so that they invest in a way that that will help them achieve their goals?
While we at Plus Value do not know Larry personally, it is clear he is no modern day Mother Theresa, and that is important. Larry is not speaking as some moral authority determined to make the world a better place. Larry is speaking as the world’s largest investor, telling people that in 2018 and beyond companies failing to understand and invest in their wider stakeholder community will also fail to create long term value.
In 2015 BlackRock launched their own impact fund, that was a positive step and a nice to have, but in essence was just small fund catering to millennials with a social conscience and money to invest. This time it is different, Larry is discussing his entire global equity portfolio, Larry is discussing a major change at the heart of finance and business.
When Larry speaks, people tend to listen. Is this the moment impact investing steps into the mainstream? Come get us on @plusvaluetweets