Virtual Symposium

Investing in a Sustainable Future Symposium

Tuesday and Wednesday, March 9–10, 2021
Larry Fink

The Investing in a Sustainable Future virtual symposium was held on March 9 and 10, 2021. The event convened experts to examine how financial markets currently assess climate risk, as well as potential measures to ensure better incorporation of climate considerations. Keynote speaker Larry Fink of BlackRock discussed how investors and businesses can adapt to the challenges posed by a changing climate.

Presented as part of the Rita Hauser Annual Event, the symposium was made possible by the generous support of the Hauser Foundation

Session One: The Financial Risks of Climate Change
Panelists will discuss how financial markets currently assess climate risk as well as potential measures to ensure better incorporation of climate considerations.
Session Two: A Conversation With Larry Fink
BlackRock Chairman and CEO Larry Fink will discuss the investment risks posed by climate change; BlackRock’s plans to further integrate environmental, social, and governance factors into its investment processes; and how investors and businesses can adapt to the challenges posed by a changing climate.
James M. Lindsay

LINDSAY: Welcome to the second session of the Council on Foreign Relations virtual symposium on Investing in a Sustainable Future. I am James Lindsay, senior vice president, director of studies, and Maurice R. Greenberg chair here at the Council.

I would like to welcome Rita Hauser who is in our virtual audience to this session. This symposium has been made possible by the generous support of the Hauser Foundation. Over the years, the Hauser Foundation has supported more than a dozen Council symposia on topics ranging from organized crime to the rebalance to Asia to the future of democracy. You can find the videos and transcripts of all of these events on the Council's website, cfr.org.

Yesterday's panel for Investing in a Sustainable Future discussed the financial risks of climate change. Today's discussion features Larry Fink, founder, chairman, and chief executive officer of BlackRock and a member of the Council's board of directors.

I would now like to hand the reins over to Mark Tercek, who is today's presider. Mark is an advisor to private sector leaders on environmental strategies. From 2008 to 2019, he was the chief executive officer of the Nature Conservancy. Before that, he was partner and managing director at Goldman Sachs for twenty-four years. Mark, over to you.

TERCEK: Okay, thank you, Jim. And thank you, everybody, for joining us this afternoon. This should be a really interesting discussion. As you've heard, I've been a champion for private sector-led environmental problem-solving for a long time. And nobody has done more in that front than our guest today, Larry Fink. So I'm really delighted to be presiding over this conversation with Larry.

Larry, let's just jump right in. The Council's asked me to ask questions for about thirty minutes, and then we'll invite members to ask questions themselves. Larry, on everybody's mind, of course, has been the crisis of this pandemic. Fortunately, it appears we're now in a position where real progress has been being made. But when you think about the pandemic, what lessons do you draw for the business community in connection with other big threats, like climate change and other challenges?

FINK: Well, Mark, good to see you. And for everybody, I was on the board of directors of the Nature Conservancy during part of Mark's reign. And so we go back many years. And I'm happy to hear that there's a large audience today for supporting the Council on Foreign Relations.

So the pandemic, in my mind, really changed capitalism in good ways. And maybe in some bad ways. I think capitalism has, you know, did incredibly well when you think about how quickly the pharmaceutical industry, mostly U.S. pharmaceutical companies, have come up with a vaccination in ten months. Unheard of. Now much of it had to do with federal dollar support. But, to me, these are really great examples how we adapt and how we grow.

But for the majority of society, the pandemic is truly one of those existential risks of health that we all read about the, you know, the 1918 Spanish flu pandemic, and we understood about SARS, and MERS, and Ebola, and I could go on and on. But this really became a true global pandemic, the first one, really, in our lifetime. And I do believe it really illustrated the fragility of our world, the fragility of our health, how important human connection is, and we're finding that now, after a year of being remote working, the extent of mental illness and stress that just—what is happening as we are resolving and trying to cope with the disease.

But what we also witnessed in in 2020, and now into 2021: greater focus by society, by corporations, about the existential risk of the earth's health. And it is very—it is very evident that in all corners of the earth today, the conversation of climate change, climate risk, transition risk, net zero world is a part of every conversation.

So if we, you know, we are connected with so many different investors worldwide, I would tell you today, Mark, thirty percent of every conversation with almost every investor, from a family office to a sovereign wealth fund, to a regulator, to a policymaker, the conversation of climate change, climate risk, transition issues, transition risk, are a part of the conversation. And we are witnessing dramatic attitude change, not just in this country, but now in Japan and China. And I do believe society, because of the pandemic, is saying we now need to truly focus on the whole idea of climate risk.

And I would say one thing for somebody that you would recognize this, Mark, from going from the investment banking side to the world of NGOs, and what—the great work you did at the Nature Conservancy. When finance recognizes a problem, even a future problem, even—we bring that problem to the present. We call it the present value. And that's what's going on now. That's the existential thing that's going on in finance now. This is not a mystery anymore. This is not a theoretical anymore. The pandemic has brought the problem forward, albeit a little different. But now it's being analyzed and being approached. And I do believe we are going to see this seismic change in how we invest. And through that, we're going to see this vast reallocation of capital. That's going to be very transformational. It's going to create big changes in our society, in how we work and how we live, and but we have to do it with an open mind.

And what I mean by an open mind, we need to do a lot of societal planning because if we don't do this, and we just focus on the earth's issues, and if we don't do a lot of societal planning, working with public companies and private companies, with government, multilateralism across the board, we are going to create a very unequal outcome. And that's going to be one of the big issues.

TERCEK: Okay, thanks, Larry, that all makes a lot of sense to me. And I agree with you, I think, to see that financial perspective brought in forced to climate change now should really accelerate problem-solving.

Now, of course, in my view, you're one of the people, you and your colleagues at BlackRock, you've played a big role in making this happen. And I've admired your annual letter to CEOs every year. They're really thoughtful letters, challenging CEOs to do more and to think more broadly than at least traditional business people used to think. In your most recent letter, and I thought it was your best one yet, you cover a lot of topics, but you really pushed companies hard to embrace the goal of net zero.

FINK: Yes.

TERCEK: You know, everybody in the audience I'm sure knows, net zero is what the IPCC scientists globally have concluded, as a world, we must accomplish. And so therefore, people like Larry are arguing that companies should each do the same. And in your letter, you even say that companies who do it will be rewarded in the stock market, and once you don't, will be punished. And of course, I'm for that. I'm a fan of that kind of thinking.

But I did wonder then, boy, these are the kinds of things in the old days, we would think, you know, government policy would be driving. Our government hasn't really been—seems to have not been up to the task in the U.S. or elsewhere. So business leaders like you are stepping up.

Are the kinds of things you're advocating in your powerful position as CEO of BlackRock, you know, arguably the most important investor in the world, is it almost quasi-regulatory, when you express it the way you did in your recent letter?

FINK: Yes, yeah.  Let me answer—you raise a very complex question. So let me answer it in a complex way. I began writing these letters nine years ago. And I began writing this letter on the whole foundation of long termism. It was very clear to me we have forgotten the notion of long term and long-term investing. When you watch the financial medias, when you read the print medias, and the virtual medias, it's all about the tick-tock of the market. It's about the markets going up and down. You know, it is about short termism to the max.

BlackRock is the largest manager of retirement assets in the world. To manage retirement assets, it's a long liability. It is a long outcome. And so we—everything I've written in the nine years of writing these letters is about how can we improve our clients' savings, so they could have retirement in dignity.

And so I want to begin to say everything I'm writing for is not because I like being yelled at by the far left and far right. I write these with the idea how to make our clients' money perform better. How can we create a capitalism that creates more durable profitability? And so if you read the stream of these nine years of letters about long termism, and what that means, and how should we focus on it, and why that is important.

And then a number of years ago, I started talking about stakeholder capitalism. It is more than just—we as leaders of businesses have more than just our shareholders to focus on and in a year of COVID, more than ever before, if you don't focus on your stakeholders, your employees, first your clients and your community where you work, in an era where we went from a globalization world to a deglobalization world, the multinational firms better earn a license in every place they work, or they're going to not earn that license to operate. And so those are the things that I talked about.

And then in the last few years, I spoke about climate change because we believe climate risk is going to impact those long-term portfolios. And so I wanted to frame your question in the light that I write everything for the purpose of improving our clients' savings and creating companies with more durable profitability.

And so with that lens, I am now informing the companies who we invest what we expect. We're not—this is not—you know, I don't want to be, you know, we're not—I'm not doing this to be powerful. I'm not doing this because I like being—because I like—enjoy the publicity of these letters. I must remind you the first six years a letter, they had a mind share of about four minutes because no one really cared about long termism. But it's now more people are focusing on things like that. But I write it through that lens, and I write through that lens. And I'm now informing business leaders and their board about all these types of risks.

I would like to also say in some of the things that I've asked are much more tactical than the macro thing. We have—over the years, I've asked boards and the leaders of companies to inform us as shareholders, what is your long-term strategy? We want to understand that because most companies never inform their shareholders of what their true long-term strategy is.

And then I even asked a question that was related to did you review—did the board of directors review that strategy? Because in so many instances, you see a board dismissing a CEO or a management team and they bring in a new leader, and they do a, you know, 180-degree pivot and you would say, well, isn't the board responsible too? You know, if you're going to do that type of pivot, the board also has responsibilities and why are we—why isn't some of the board members leaving, if you had to dismiss and change your strategy, so that that dramatically?

So I just wanted to answer it, because it's really important. We're not this—we're not trying to be excessive. We're not trying to be—I don't even want to be considered—we're trying to push people. We're trying to inform the companies we invest. These are the things that we're focused on.

Now, let me—you frame the question about the winners and losers in terms of stocks. And if you don't move forward, you're going to have outflows. And if you move forward, you're going to have inflows. In 2020, there was $360 billion of inflows as an industry in sustainable products. That was 115% increase in the whole of 2019. And this is continuing.

And you know, the one thing I have asked companies to report under TCFD and SASB, too, so we have better transparency on how companies move. And we see this worldwide, more and more investors, as I said, every conversation has something about sustainability. More and more investors are going to be moving to more sustainable strategy or more ESG strategy. We're able now through transparency and through understanding how companies operate, we're able to now customize portfolios that have higher ratings related to sustainability and other metrics like E, S, and G. And in 2020 and 2019, all those strategies outperformed traditional indexes. And what we believe we're going to see is a huge migration away from the traditional indexes of S&P and all that into more sustainable strategies that may reflect a lot of the S&P or a lot of the MSEI or the Russell. And that's a tectonic shift in capital that we are going to see. And this is just the beginning.

So for companies who are in denial, for companies are not going to report this, they're just going to see money moving out of the traditional liabilities, let's say the S&P, into a more, let's say, an S&P sustainable strategy, or a more customized strategy. And so what we're trying to do is inform all the companies we invest not with a hatchet, but try to inform this is what we are seeing as the largest investor in the world. This is the conversations we're having with our clients. And more and more clients are now interested in creating more customizing portfolios that mirror or closely approximate the traditional benchmarks.

But they're different. And they're different because there's going to be active investing away from those who are deniers are those who are not moving forward fast enough to those companies that are moving much more rapidly in those directions. And that's the reallocation.

And it's not us trying to dictate what everything—we're trying to advance this to tell more and more companies this is happening. And if you, you know, it's your decision. We don't you know, what, when we asked you, every CEO and their board, that tell us about their strategy, and if their strategy is just going to be still the old strategy and then, you know, they're going to witness that outflow of capital. And we're seeing that. You're seeing it already, Mark, you're seeing huge, broader ranges of PE ratios in specific industries between companies are more forward, focused on this than companies are not. Even in industries like the pharmaceutical industry that I spend a lot of time focusing on, there's a big PE range between the best companies and the weaker company. And it's, and I, you know, without identifying the company, the one company that highest PE, it's not based truly on its science and its product range. It's based—this company is actually doing more than most of its peers in terms of issues around E, S, and G.

And so it's—and so, when—now, you asked me about net zero. We are being asked by more and more regulators on net zero. And I do believe in Europe, almost every European country is now moving towards that standard of disclosure. There is a high possibility—and we don't know factually—that the Biden administration is going to be asking more of that.

And so I said in my letter, we need to self-regulate, we need to do this before we're told. And so, you know, so I firmly believe we're going to be told, probably, but I would like us to move more rapidly and be part of the solution and not part of the problem. And I think—and so that's what, I mean, I have asked.

Now, this all represents one big, giant problem, though. So I'm able to ask public companies what to do. And since I asked in 2020, companies that report under SASB, there's over a 400% increase in companies that are reporting under SASB. And it's just accelerating. This is all good. So we're seeing a very rapid change in public company behaviors, whether it is regulatory, governmental push, or BlackRock suggesting. And I think that's going to happen. I am so convinced that the public universe is going to be moving very rapidly towards this.

But that doesn't change society if society doesn't ask everybody to be part of this. I don't want a future where governments just ask the convenient public companies to do something without asking all of society to do something. I don't want a future in which public companies are asked to do something and therefore a lot of public companies go private because private companies are not asked to do it. That would be a—you'll never get to net zero. If that's what society wants, society has to focus on this completely. Part of a net zero future means we have to focus on not just the scope one of what we do, but the scope two and three, what our suppliers do. We will never achieve that unless—and it can't just be the mandate of public companies asking their suppliers. That has to come across society's wishes. And if society doesn't want that, then society is not going to get to net zero. And that's the issue that we have right now.

There are many examples right now in the last year that you see public companies selling their dirtiest hydrocarbons.

TERCEK: Yeah.

FINK: And that public company looks even better now. So you know, as a manager of public assets, we're happy. But if they sold those dirtier assets to some private equity firm, and they don't have to report, and they don't have the same science and technology to make sure it's being done properly, the world will never get to net zero target because we're just moving from public, transparent companies to non-public companies. And that's what's happening now.

And this is one of my big alarms to every governmental official who will listen to me on this. If we're going to ask companies to move forward in this, we have to do it completely or we're never going to get to that point. And, you know, I did say in a speech about a few weeks ago that some far-left person criticized me but that I said actually selling hydrocarbons from a public company to a private equity firm is greenwashing because we're not changing net zero of the world.

And so what I'd like to see is—this is great public policy—that we all work together to try to find a, you know, each company that has this. They put it into a declining trust, and maybe private money goes to invest in it, but it's still managed by that company, and administered by the company. And we deplete that, because, as you know, from your years of science in this, we're going to be living with hydrocarbons for fifty-plus years. We don't have the science and technology to really get to a net zero yet.

And so we need to make sure that this transition is just—is fair for all, fair for public companies versus private companies. But also, we need to be making sure and ensuring that this transition is just for all parts of society too. And so this is why—this is going to be—this why it requires really important long-term planning at the governmental level.

The last thing I would like to say on this really important topic: the amount of capital that we're witnessing that I talked about that's going into sustainable strategies is enormous. I can tell you that more—we have so much excess demand for products and capital and projects, then—and you just see that in the PE ratios of some of the renewable energy companies versus a traditional energy companies. And so this is why I'm urging our country in the United States and other countries to focus on public-private type of investments together so we can move forward. We can do this.

As we witnessed because of the freeze that we saw in the Midwest and Texas, we need a national power grid. And we need to do this with a combination of renewables and hydrocarbons. And we need to have that fluency between it so we can operate it properly. And we're just not investing enough for the future and that—there lies one of my fundamental worries about this transition. If we don't have proper long-term planning at a holistic level, it's not going to be—it's going to be pretty lumpy, it's not going to be just, and if we put a lot of pressure just on public companies, we're going to have a lot of public companies going private.

TERCEK: Yeah. Okay, thanks, Larry. Boy, you raise so many interesting topics. I can't follow up on them all, but I hope members will. I agree with you and I've written about the private sector has to step up, private companies. And I think private equity, the prominent private equity firms could lead that charge. Most of them have ESG or impact funds that they're very proud of and talk a lot about. I always ask about everything else in their portfolio, which of course is a much bigger part of their business.

And if we're asking public companies, you name it, to step up like you are then why not those portfolio companies? You also talked about adjust, transition. I think that topic doesn't get enough intention in environmental communities, especially the need for climate progress to occur at the lowest cost possible because otherwise those costs will be borne by lower income parts of society.

FINK: Absolutely.

TERCEK: I wanted to talk, though, about one aspect of what you're doing. In my own work, companies, often, even at the highest level, CEOs, seem a little bit unsure about what they're supposed to do. And what I always say is look this take some work. You know, what is your purpose? Well, you can't just wing it. You've got to think hard about what your strengths are, what your business opportunities are. I think what's great, Larry, about you and your team's work is you've used your bully pulpit well, but it's also matched by the actions of your company. So you're in the business of managing pension assets. And running these big passive funds. And so it's very exciting to see the evolution of products along that line. So your company is doing its part in a way that makes business sense to accelerate this transition.

What advice do you have for CEOs about how they should go about thinking about where their opportunities might be to make the most important impact? And also to do so in a way that makes business sense?

FINK: Well, one thing—we don't dictate anything to companies. We ask companies to tell us your strategy, how to go forward on this. I mean, we're asking companies, okay, you know, if you don't believe that there's a climate risk to your organization, tell us why. If you don't, you know, tell us why you that you don't have to prepare for net zero world.

We're not going to tell the company what we suggest. That is not our responsibility. Our responsibility is to ask companies to be more transparent on how they're moving forward. And for those companies that are moving forward in a constructive way and in a very transparent way, in many cases, we're going to be supportive.

Now, sometimes we're going to be more supportive than some of the environmentalists want us to be supportive because we, as you said too, that, you know, we're going to be more focused on making sure there's a just transition, and some companies are going to require a little more time. But we want to understand how, okay, they may take one or two more years more to get going on it. But we still want to understand how you're going to get to that point for that net zero future. And so we're not going to tell a company what to do. And that's not—you know, we're not, we're not that smart. We're not that smart, and it's not for us to tell them what to do. We may not like what they say, and we may vote against them, then. But it's not for us to ever tell the company what to do. It's for a company who theoretically know their business, you know, they theoretically know what to do about their business. And it's for them to identify how they are going to move forward.

Look, I do believe one of the you know, when we look back at the great companies of 2020 in this COVID world, if you look at the great companies in 2020, the companies that focused on stakeholders did far better than the companies that just focus on shareholders. The companies—and I believe that's going to be the case in 2021 until we have some form of normal work environment again, normal life environment again. And so our job is to be good listeners and evaluators. But our job is not to identify their issues. That's not, you know, that's for a regulator to do.

TERCEK: All right. Well, I would suggest to those companies so they can learn from watching your—BlackRock's behavior and other leaders. Look, we're about to open it up to members for their questions. But let me ask—

FINK: Mark, let me just let me just tie in one other thing: what I can do. Let me reshape the question for a second because I think it's important.

What we are really trying to do, though, is we are trying to educate the asset owners. You know, our $8.7 trillion that we're responsible for, none of it's our money. And if a—the only thing we have said we're not going to invest in thermal coal. So if somebody wants to have some investment manager invest in thermal coal, they could do it. We have not said anything else beyond that.

And so—but we are trying to inform more asset owners about we could customize strategies that will give you better scoring, a better net zero future away from these traditional liabilities. We could give that, as you said, that choice. And what we're trying to do is, especially in the United States with a fiduciary standard rule, we need to make sure that they're—everything they do is a fiduciary to maximize profits on behalf of their participants. So we need to live under that rule. We do. And this is why we're spending huge sums of money at BlackRock to develop the analytics and data, which is probably the biggest effort at the firm at this moment on making sure that we can have the proper analytics and data to understand climate risk, transition risk, and how that affects every company. So we're going to—we do that.

And so then we can create these customized portfolios. So for us, we are doing a lot of education to the asset owners, we're doing a lot of work to help the asset owners understand there is choice now. And hopefully that means a tectonic shift away from the traditional indexes that may have a lot of hydrocarbons or a lot of other things. And so we're going to be a lab. That's where it's going to be changing. And, you know, we are criticized, though, because we do create these customized portfolios that may own one or two very forward-focused hydrocarbon companies.

Because we have to get—we have to design a portfolio that is close to their liability that their board of directors mandated. So if the liabilities are Russell or MSCI or a S&P, we're obligated to try to replicate the returns of that, but with better ESG scores, and that's what we're trying to do. But that's what—where I believe BlackRock can play the biggest role is working with the asset owners and helping inform them.

And, you know, we could do that to everybody. We can sit down within pension funds in states that make a lot of money in hydrocarbons. And we're doing that and telling then here is a different way of looking at things. And so we have we, you know, we have clients from all parts of the world, all parts of our country, and we have to be a fiduciary for all of them. And the number one way we could be a fiduciary to them is to inform them, to educate them that there is choice now.

TERCEK: Okay, I think that's very exciting. Hey, let me shift gears before we open it up. I know you're a global citizen. Relations between China and the U.S. aren't what they used to be. Yet, we're the two biggest players in the climate front. And it's hard to imagine global progress is achieved without a huge degree of sophisticated cooperation, collaboration between the two countries.

How do we—how do you think that the world should move forward to make that happen? Or how hard is this going to be?

FINK: Our two countries, we have a lot of differences. But our two countries, we have a lot of business together. I mean, let's be clear, you know, we are their largest trading partner still today, despite our differences. So I'm pleased to understand that the secretary of state is going to be having a bilateral with his equivalent of China in the coming week.

In my conversation with the Chinese in China, we did a green bond, a green financing seminar in China, supported by everybody in China. You know, there are many reasons why we have this tension, but mostly what we need to do is have a conversation, and I do believe the Biden administration is moving forward on having those conversations. I would say from all the business leaders I know, their conversations with their counterparts in China are probably a little more positive, a little more robust.

I do know, at a personal level, that President Trump's phase one of the trading treaty between us and China emphasizes the opening of the Chinese financial services market. And China is doing that. And we see that and they have awarded BlackRock and many U.S. companies, some European companies who are in financial services, a temporary license and we're now applying for our permanent license. And from our limited scope, we are seeing real opportunities between our two countries.

TERCEK: Okay, thanks, Larry. Carrie, let's open it up to questions from members, okay?

STAFF: [Gives queuing instructions.] We will take our first question from Liz McKeon.

Q: Hi, good evening, gentlemen. I'm Liz McKeon with the IKEA Foundation. Thank you very much for your comments. We're a strong supporter of just transitions and so glad to hear that.

I'd like to focus if we can on net zero. It's a powerful term, but it's one that does not presently have a shared definition. So some believe that the past net zero for a company necessarily involves maximizing every opportunity to reduce emissions a priori, so we're seeing manufacturing, logistics, transport, and only after you do that, then you consider offsets, CDR, and other things. Others believe that net zero can be achieved through any formula if it gets you to the goal, even leading with offsets, if that's the most expedient. Do you have a view on the orthodoxy of the term? And how would you like to see companies implement this?

FINK: Wonderful question, and I don't have a good answer. But one thing that we've asked every government, what we've asked, you know, Mark Carney and—as we prepare for COP-26, we need to create a taxonomy that is consistent. You raised a very important question. We don't have that.

I've also asked every regulator as they move forward, if they are going to mandate regulation. There's going to have to be a number of years of safe harbor until we have a taxonomy that we could understand. You raised the two possible outcomes for a net zero. And I could—probably half the audience would agree on, you know, the most strident one, the first one you mentioned, versus the second one. I would say right now until we have better—until we have society fully agreeing on how we move forward to net zero, it's very hard to do scope two and three. We're not going to get there to get to the net zero that you referred.

So what companies are doing now, they're buying offsets. This is why I'm also saying why we need a real proper pricing of carbon. We need a carbon market to price it and so we—you know, it's—you know, I mean, you read some people's thinking carbon cost is $200. Some people-—you know, it's across the board, there's no taxonomy, and that in itself is something that is just revealing the problem we have.

But to get to a net zero, it is going to have to be society, asking all of society. It's not going to be just asking public companies to try to do scope one, two, and three. And so at the moment, if you're trying to reduce your carbon footprint, most people are doing it through offsets today, and those are the facts and so hopefully through COP-26, which will be this fall in Scotland, with all the countries meeting together and coming up, what we are trying to urge and I know the IKEA Foundation can play a big voice in this, is to try to come up with—asking governments to focus on all society, and asking all governments and come up with a unifying taxonomy that we all could agree on. Mark, you must have answers to that, too.

TERCEK: I agree. It's a great question. And I think we're going to see—I think I'm pretty optimistic—I think we're going to see a lot of momentum here in the near term, because as companies tackle net zero commitments immediately, then they want to know exactly what it is they're supposed to do, what the standards are, etc. It's, as Larry just said, in his—you know, it's not at all clear. So people are pushing for that clarity.

You know, the science-based target initiative is one of many worthy consortiums tackling this. They're welcoming input right now. With a friend, I just submitted my proposal for how net zero can be clarified. The IKEA Foundation and other members here should do the same. It's really important to get this straight ASAP so that we move forward with some clarity.

Because another problem is—and Larry, I bet your clients see this—it's great that companies declare they’re on a net zero path, but it's very hard right now to compare one to another, hard to know whose progress is sincere, whose is PR, etc. So we have to do good work here fast. But nobody really knows what their suppliers are doing and how they're measuring it right.

Now, let's be clear, there is no taxonomy to how we can measure our suppliers. We don't—it is—and I don't think any major company wants to tell a supplier to use their metrics. So it can't be at a corporate—then well, we won't have any taxonomy, too, because every company may have different metrics. And so it's this-—if there's one thing we need from government, if there's one thing that we need to have unifying is a taxonomy that we could all agree upon. And then we can all move forward. Some of us may disagree with it, but at least we have a foundation to agree.

Okay, thanks. Thanks for the good question. Carrie, next question.

STAFF: We'll take our next question from Tracy McKibben.

Q: Good afternoon. Thank you, Larry, Tracy McKibben from MAC Energy Advisors. And you sort of touched on my question in your last comments. This is back to the net zero discussion, as well as the public-private divide you're seeing between public companies and private companies. I'd be curious of your thoughts around, you know, whether there's a need for governments to look at how do you properly incentivize the kind of behavior you want. Rather than a carbon tax—I agree there should be carbon pricing. Is there a way—should we be looking tax incentives that encourage both renewable companies as well as more conventional oil and gas companies to participate more positively, to see benefits toward reducing their carbon? Any thoughts on the direction, whether, you know, a carbon tax seems more punitive than, you know, sort of positive incentives that you would want to give.

FINK: I totally agree on that. I'm, you know, I don't know how we're going to administer a just carbon tax. So that is punitive. We need to—it has to be through some form of incentives, in terms of moving things forward.

But let's be clear, I mean, it's going to be—we're going to solve the problem with our power grid, electricity grids. We're going to find—we have the technology, we're developing the green premium, as Bill Gates talks about it, has been reduced dramatically when it comes to electricity now with hydrocarbons versus green energy. Obviously, we have the issues of we need redundancies, which we learned in Texas and other places like that, that is going to have to be a combination in the near term of do we have better storage of energy, a combination of hydrocarbons and renewables. But we need to be focused much more than that.

It's going to have to be in other industries, whether it's, you know, understand what, you know, we're going to need technology to create green hydrogen, we're going to need to have different technologies helping us—helping the farmers because the farming produces a, you know, the mid-teens of our carbons, you know, in our world today, and we need to be developing technologies in so many other areas. So I know it's so convenient to talk about the power grid and cars and trucks and all that.

But we're not really focusing on the big problem. We don't have the technologies yet for so many of the industries that are big producers of carbon. We are in the path through technology, through innovation. And this is the magnificence of what we're doing now that we're moving forward. But it just takes too long.

And as Bill Gates's book talks about it, you know, when you think about we have the technology related to you know, solar and wind, but it really has now taken thirty years to bring the cost down to something that's equivalent of the hydrocarbons. We don't have thirty years in all these other industries to really get to a net zero. world.

And I think that's what we need to be focusing on. We need to expand the dialogue, you know, beyond that. Obviously, you know, there is a solution at hand to have a more sustainable power grid, through that we have solutions at hand to have personal vehicles to be sustainable. We have many things at hand. And we're moving forward in that. But we're not spending any time, conversation about how do we move forward elsewhere? Where's the technology? How are we moving forward? And that's where government policy, just like, you know, our government policy, you know, during the space age that we knew we needed to advance that we now need government policy to advance how we move in other industries, too, that we're not talking about.

TERCEK: I would add, Larry, there's so much we want from government. Some of this is grand, and who knows how hard it will be or feasible to get in the near term. Some of it is not so grand, though. Like, you know, Gary Gensler, now at the SEC is looking at disclosure on ESG and climate matters, and I think better and uniform disclosure could really accelerate progress across these different industries.

FINK: Yeah, I agree. And that's why we've been calling for companies to have the report under TCFD and SASB so I'm in full agreement. But it will not work again if we're not asking all of society, public and private. To me, there's no question, the SEC is going to be moving forward in that as other countries are moving forward to that, but we don't answer—that will not solve this problem.

TERCEK: Fair point. Okay, thanks for reminding us. Private companies have to step up, too. Next question, Carrie.

STAFF:  We will take our next question from Akshaya Kumar.

Q: Hi, Larry, thanks for taking my question. My name is Akshaya Kumar. I'm a crisis advocacy director at Human Rights Watch. And I wanted to pick up on the point you were making about sort of education of asset owners. And I was wondering about stakeholders as well, including our own employees that institutions and companies and the offerings that are available to them through 401k or 403-b plans. It seems like that's still a space where we haven't had these products that are screened or socially responsible or ESG-sensitive made available? And what about sort of shareholder activism as well for these individual stakeholders? Is that a piece of it that we need to put more resourcing behind right now to see that whole of society of transition that you were talking about?

FINK: So I believe many companies are now beginning to focus on their 401ks and offering different types of alternatives. A couple of great companies, without identifying them, we are working with them, and they're moving, they're offering more and more options.

I will tell you, in the first year, very few of the individuals move their options. So we were surprised how little movement we saw with their employees. And these are, I would say, some of the companies that are really forward thinking.

I would say, though, we are—if we were going to see this transition occur more rapidly, we need to get over COVID. There's not an HR department that is focusing on their 401k this year. They're focusing on the mental health issues, they're focusing on so many issues, their employees’ health.

I, you know, we've had, we were having so many broad conversations on redesigning some of the product profiles that were more sustainable. We are actually working with many of the retirement plans on creating a new design 401k plan that has more like a guaranteed paycheck, so people have more certainty of what their monthly payments are during the de-accumulation stage.

That's one of the greatest uncertainties that everybody has related to retirement. You know, most people don't understand if you have a $400,000 nest egg when you're sixty-five, or $300,000 nest egg, you don't know if that's going to last you for years, or ten years or twenty years. And now with, you know, with all these issues, and so, we have come up with this new design of a 401k that provides a real certainty in terms of your paycheck, when in during the de-accumulation stage.

And we were having robust conversations and, with COVID, everything stopped. So I you know, and that's understandable. I mean, the corporations have much more immediate issues, and making sure their employees are safe and safe not just physically and medically, but safe emotionally too and these are the big, big, big issues. And, you know, there's no question, things like the pandemic have slowed some conversations down. And I do believe when we are—when the pandemic is just a disease that we have to live with and we have to give annual vaccinations, which hopefully, that becomes, you know, the, you know, the real foundation in 2022 or 23, at latest. And I'm not trying to be bearish, but I do believe we're going to have vaccination for many years until we conquer the disease worldwide, not just in the developed countries. Those are the issues that are going to be addressed.

And I do believe that a great—as more and more 401k plans move towards that, that gets into that reallocation of capital that I'm talking about in terms of activism. Sure, I mean, you know, it could help on any one individual company, I don't see it changing society fast enough, though. And so hopefully, that we have a big problem in the climate risk in the world today, we need to be more holistic than attack—in my mind attacking one or two companies. We need to be focusing on broader solutions. And as Mark and I talked about earlier, I'm really pleased that I think finance gets it now. We're going to be front and center to try to make this movement faster.

But the only way we're going to move this faster is also focusing on society, investing in technology, investing, you know, investing, so we could come up with the new technologies that are—that create quick change in our carbon footprint. But that change that's more just too because there's a lot of certainty that we could create a transition, but it's going to be adjust for a lot of segments of society, which then ultimately means it's politically and unpalatable.

TERCEK: Thanks. Carrie?

STAFF: We will take our next question from Pamay Bassey.

Q: Thank you so much, and thanks, Larry. My name is Pamay Bassey. I'm the chief learning and diversity officer from Kraft Heinz and a proud BlackRock alum. I want to take—so it's good to see you even on the screen.

FINK: Yeah, I have less hair, don't I?

Q:  You look great. You look the same, it's great. I want to take the conversation in a slightly different direction. I'm curious about your thoughts about the relationship that you see between a company's ESG efforts and their efforts in the area of diversity, equity, inclusion, and belonging. Given what the capital markets are and companies like BlackRock are asking for as you continue to educate asset holders, how it impacts investments, and how companies themselves are connecting the dots regarding their efforts to diversify workplaces in their ESG efforts?

FINK: Great question. Nobody has it right. BlackRock doesn't have it right. We have issues, we have sometimes bad behaviors. It has to be imbued in culture every moment, every day. We all have to do that.

And that is why we are asking every company reported under SASB. When you report under assessment, we can see how you're moving into you know your company in a faster way related to diversity and inclusion. You can't hide with transparency. And so we this is why we embrace SASB, not just for the environmental stuff, much of it for the social issues and the diversity and inclusion issues. And as more and more companies reporting under these diversity issues, you know, we show our weaknesses, or we show our strengths.

And I do believe through that process, again, we're going to move much more rapidly, once again. But if we only ask this of the public companies, if we don't change society, and you know, I know, public companies can be leaders in this and move forward and that it's a great start. But once again, we have to make sure that we're doing this across all corporations, public and private, and we need to do it.

But let's be clear, nobody has this perfect. You know, I identified that we're not doing it fast enough at BlackRock as a CEO. We had an incredible townhall yesterday at the firm related to DEI. I even told everybody a part of that, that if you don't want to don't believe in this, please leave the firm. I mean, we you know, we can't afford, as an organization, especially as public as BlackRock, we have to be a leader in this. And we not only have to be a leader in it, we have to earn it every day and believe in it every day. And every citizen has to do it worldwide.

And so I take this very personally. And by taking it personally, we have to admit when we're not doing it well enough or fast enough. And I would hope more and more companies do that and the best way we could get more and more companies to focus on DEI is to be more transparent about your practices. And that's why we're urging every company to report it under SASB.

TERCEK:  Thanks, Larry, thanks for a really good question. Carrie, we have time for a few more questions, I think.

STAFF: We’ll take the next question from Cynthia Roberts. Ms. Roberts, please accept the unmute now button.

Q: Sorry, I clicked this by mistake, my error.

STAFF: 

Thank you very much. Moving on, we'll take our next question from Valentina Barbacci.

Q: Yes, hi, good evening. I'm based in London here, so it's evening for me. My name is Valentina Barbacci, and I work as a freelance social and environmental consultant to a number of different social enterprises around the world. So thank you so much for your remarks. I really appreciate your points about society needing to demand more and better with regard to more ethical and sustainable products and services while at the same time companies need to step up to meet that demand or even anticipate it. You talked a great deal a little earlier about informing your clients and companies that you invest in. But what about the rest of the world? I don't want to obviously oversimplify the solution because there really isn't a sort of one-tick fix or to the issue or one-stop shop to building a more sustainable future. But from my perspective, working at kind of a grassroots level and small, medium enterprise level, one large and often forgotten pillar is education of the consumer. So as you mentioned, in order for them to know that they need to demand more ethical options and consume in a more ethical way, they need to understand what that means, how their purchasing power can demand that.

So what role does Black Rock currently play? And what role should it play, because they're not necessarily the same, given its access to data and insight that you mentioned in educating and even creating that type of consumer to better incentivize companies to that direction?

FINK: Thank you for the question. First of all, BlackRock doesn't go to the last mile. We don't—we work with financial advisors. All our $8.7 trillion is working for a 401k, for a corporation, for a sovereign wealth fund, for a wealth office. We are not the institution that goes to the final conversation to the investor. And that has been our business model.

So it—but nevertheless, we believe it's a responsibility for us to inform and build better knowledge related to investing to all our clients. And hopefully they pass that on. We have developed over the years probably the most robust risk management systems to help our clients understand their risk. We have something in wealth, which helps the financial advisor speak to their individual investors about what type of risks they have in their investments. We have the BlackRock Investor Institute where we publish many different things related to investing and priorities. And that is distributed worldwide. It's on our web.

And we, you know, we just had one of our sustainability leaders talk about net zero. And as of yesterday, we had two million hits from our vantage point. So obviously, two million hits was beyond our clients and trying to inform, we're going to be doing much more of that.

As I said, we're investing large sums of money in building analytics and data. We've purchased minority interest in a few companies where we have the exclusive arrangement on their data and analytics to understand what that impact is on a corporation and on an investment strategy. And through those processes, we're going to be much more focused on redistributing that information on the internet, through our website, and through just through our network of clients worldwide.

And that's the role I think we have to do. And I'm very proud that—and this is one of the reasons why I continue to write these letters—we're being validated by our clients worldwide, that our voice is important, and we're being validated and complemented by the asset owners worldwide. And they thanked us for that voice. And so that's the role we are playing. We're willing to have that voice. We're willing to be more courageous than most businesses.

You know, it was much easier as a CEO twenty years ago when your voice was not important. Today, business leaders' voice is very important. And I do believe as, you know, there was a survey that came out at the end of the year that stated that, at least in America, CEOs' words resonate with more people than politicians today. And that's an important statement about society now, that society is not anti-CEO, they're respecting the words of leaders. And which means as you frame the question, Valentina, that, you know, our voice should be heard, and we should be more forthright.

I have to focus in my voice, am I—is my voice reaching my three major stakeholders: my employees, my clients, and the society where we work? And if we do that, we are going to create on behalf of my fourth stakeholder, my shareholders, more durable profitability. And so everything we try to do is to empower ourselves in terms of in reference to our major stakeholders.

TERCEK: Larry, we only have a few minutes left. One timely last question from me. SPACs.

FINK: Okay.

TERCEK: There suddenly have been quite a few ESG SPACs. Is this a good thing for progress?

FINK: Look it, I think the more we can talk about it, the more we're going to be moving forward, the more we can have in common. You know, five years ago, I don't believe CFR had conversations like this. Five years ago, many organizations didn't. It was in the domain of the NGOs more than—right? And now it's now becoming part of the common conversation at the corporate level, at many organizations, at policy organizations and idea setters like the CFR, I truly believe this is going to accelerate that movement. And this is why I'm optimistic. But I'm also a pragmatist saying that let's just not window dress this, let's not just focus on public companies. We need to ensure that all the society is embracing this. We need to ensure that government is not working on window dressing for the next blog, that government's focusing on to make real change over the next thirty years. And to do that requires a long-term planning and long-term planning in government right now—and I'm talking worldwide, I'm not choosing any one country—long term planning in democracies right now is a missing characteristic. And we need to get back to long term planning because, if we don't do this, we're not going to solve this problem.

TERCEK: Yep. Okay. On that note, thank you members for calling in. And thank you, Larry Fink, for a really fascinating discussion and for all of your leadership. Thanks very much.

FINK: Thanks, Mark. Thanks, everyone.

Top Stories on CFR

Somalia

Middle East and North Africa

Washington and Tehran seem determined to revive the deal that freezes Iran’s nuclear program, despite domestic criticism on both sides and the apparent sabotage of an Iranian facility.

China

The Spring Meetings should address BRI’s pitfalls and advance policies to help put BRI countries on the path toward recovery and sustainable growth.