Investing in a Sustainable Future Symposium

HAASS: Well, thank you, Carrie, and thank you all. And welcome to the opening session of this year’s Hauser Symposium. The subject is “Investing in a Sustainable Future,” and I will get to the panel in just a minute. But I wanted to thank Rita Hauser and the Hauser Foundation for doing this, but I also want to give a little bit of context here in a couple of ways.

This is the Council’s centennial year. And as you know, we were slow in some areas in terms of our membership. One of the areas we were slow was when it came to the—to women as members of the Council on Foreign Relations. We got to it belatedly, roughly half-a-century ago, and in large part it was due to one Rita Hauser. And we tell this story of how this came about in a book that all members will be receiving in a matter of weeks, so I won’t—it’s like a spoiler alert. I don’t want to step on the punchline. But let me just say that while it would have happened anyhow, it would not have happened when it happened. And it was totally fitting, therefore, that Rita was one of the first women to join the Council on Foreign Relations, and she’s played this central role in the institution now for literally, again, half a century, and we are considerably better for it. And she’s also been a personal friend of mine over the years, whether I was in government or out of government.

The only sad note is that this event takes place this year just a few weeks after the passing of Gus, who was just an extraordinary individual, one of the most creative people I was ever lucky enough to encounter in my life and also just one of the nicest and most decent. What a—what a rare and wonderful combination. And I just wanted to note that. It’s, obviously, a great loss for Rita and her family, but also for all of us.

Today’s symposium we were actually planning to do a year ago. It’s actually a year ago this week that the Council closed its doors and went virtual, and I’ll be writing members about that in a—in a couple of days. This was something that none of us ever imagined, we never quite planned for. One of the first, if you will, mutilé de guerre, COVID, was this symposium. And we’re thrilled, though, that we’re getting around to it now.

In case you hadn’t noticed, the issue has not gone away. To the contrary, not only is it still with us but things have gotten worse. Climate change is in that very difficult class of what I would call slow-motion crises. It happens, but because it’s slow motion it often doesn’t galvanize the urgency of response that is justified. And one of the challenges, I think, for policymakers is not to let other issues which are more urgent crowd out something like climate change, which is—which is incredibly important. And if we wait to the day where climate change is not just strategically important but becomes urgent in the sense that we can’t avoid it anymore, most of the good options will have—will have disappeared. So the challenge for policymakers, as urgent as climate change is already, is to deal with it now because it’s only going to become more urgent in the—in the years to come. And there’s all sorts of statistics about how this problem is gradually getting worse and we’re seeing the effects of it in this country. We’re seeing the effects of it all the way around the world.

This first session is going to look at the question of the financial side and some of the financial risk of climate change. And then, tomorrow—we’re going to split this into two days of Zoom so your Zoom muscles don’t get overwhelmed—we’re going to have Larry Fink look at other aspects of the challenge. Larry has really been one of the leaders in the corporate world in raising the importance of the business community shouldering its share of the responsibility dealing with this challenge to our economies, to our societies, to our countries, and to the world writ large.

We’re in really great hands today: Helima Croft, who is currently the managing director—see if I get this right—and global head of commodity strategy at RBC Capital Markets, but even more important she was formerly a fellow at the Council on Foreign Relations. So we are thrilled to have her back, however temporarily. So, Helima, over to you.

CROFT: Great. Thank you so much, Richard. And thank you, Rita Hauser, for this incredible event that we have today.

As you mentioned, this was actually planned for one year ago. Obviously, the issue of urgency around combatting climate change has only grown with the devastation that we saw over the summer with the California wildfires, with what we just witnessed, you know, in recent weeks with deadly winter weather in Texas, and this really is an all-star panel that will look at the financial risks of climate change.

Because we have so much to discuss in such a short period of time, I’m going to dispense with reading out the bios of these fantastic speakers. I will simply introduce them, get into the question, and about thirty minutes into the conversation we will open it up to the participants and they can ask questions of our esteemed panelists.

So first we have Alice Hill, David Rubenstein senior fellow for energy and the environment at the Council on Foreign Relations.

Next we have Carolyn Kousky, executive director, Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.

And finally we have Anne Van Praagh, managing director and head of global credit strategy and research at Moody’s Investors Service.

So for all of the speakers, I think that the big question is really to lay out, really, what are the financial risks of climate change. I wanted to start with Alice because in your works you’ve really talked about this ballooning burden in terms of the federal government, in terms of what is having to be spent in terms of disaster relief. So, you know, Alice, if you could sort of take it away and sort of open the conversation on what are the financial risks.

HILL: Sure. Thank you. I’m really delighted to join this panel, and it’s such an honor.

Well, when you talk about climate risk, you’re really talking about everything. Climate affects every system we have, from infrastructure to communications, transportation, and the financial system. And that entire system, each of these systems, rests on a fundamental assumption that is simply no longer true. We have historically based all our risk decisions based on historical experience, and that experience includes our climate. Climate is now unstable. We are seeing it move into a range of events that have not been experienced in at least the six thousand years that humans have been flourishing—human civilization has been flourishing.

So there are two primary risks that are identified for the financial market. The first is transition risk, transitioning our global economy from fossil fuels to green energy, and that’s often the risk that’s talked about more frequently. But the risk that has been much more evident, including in 2020 and now in 2021, are the growing impacts of climate change.

We have experienced some very devastating impacts, but we need to remember that because the past is no longer a safe guide the last extreme we just experienced will probably be exceeded by a new extreme in the very near future. And we simply don’t have any systems, including the financial system, ready to respond to that yet.

CROFT: Carolyn, your thoughts?

KOUSKY: Yeah, I think Alice really summarized things well. I mean, climate change is now likely to impact every sector of the economy as impacts begin to worsen in the coming years and as we begin this transition to a low-carbon economy, and I think this is now really getting the attention of firms and regulators. There is now a growing body of research documenting the impacts of climate change and climate extremes to housing and mortgage markets, for example. That’s something we have been looking at at the Center. And we also know there’s, you know, increasing concern mounting about stress to property insurance markets. We might talk about that later.

Many tools are starting to emerge to help manage these impacts and facilitate our transition, but these also need to be coordinated across sectors. So this includes things like climate disclosures and reporting, stress testing firms against climate scenarios, developing climate risk management plans. Firms in different industries and even different firms within the same industry are not necessarily going to be exposed to these risks equally or the same risks, and so we need firms and municipalities—you know, everyone—to kind of really closely examine their own assets, liabilities, operations. But everyone can benefit from more detailed guidance, some level of consistency, platforms to share best practices.

And I think lots of sectors are at the beginning of stages of this, some much further along than others. You know, we’ve seen a lot of movement recently on developing sort of more universal and comprehensive frameworks for climate disclosures, and I think you’re going to see things like that continue to be formalized and institutionalized in the coming years.

CROFT: Anne, could you talk us through, you know, what you’re seeing on this? Again, what sectors are you seeing particularly impacted? And what do you see sort of over the horizon over the next couple years?

VAN PRAAGH: Thank you so much for hosting this and to the Council for inviting me. It’s really a pleasure to be here.

I just would add, you know, to both Carolyn and Alice’s comments, that these risks are not new. ESG generally, but climate risk is not a new risk. We’ve been grappling with this now for a while. But I think what is different is that there is a broad consensus now in financial markets that climate risks are real. And so we’re seeing initiatives advancing the integration of climate risk analysis into financial markets accelerating, and I think the tipping point for mainstreaming analysis on climate risk is definitely within sight and it’s within grasp.

As Carolyn mentioned, there are a number of regulatory and policy initiatives, and even initiatives coming within the financial market community to identify new standards for disclosure, standards for reporting, trying to figure out what is the quantifiable risk that we could pinpoint. And to do that, we’re trying to assess basically, you know, for a given company or a given country or a bank, for example, we’re trying to figure out what is that company’s exposure to the physical effects of climate change and to a carbon transition.

And for carbon transition, it’s really thinking about what’s the faster-than-expected scenario that might emerge that would create some real shock to cashflows and valuation for a company; or for a country, to its economy, to its people, to its livelihood; and for banks, really, the exposures that it has to—either through its loan portfolio or through its underwriting capabilities and other exposures.

So I think for—the financial markets are kind of coalescing. We’re at a very interesting point, starting to see some real momentum. There’s still a lot more to be done.

CROFT: I want to drill down into some specific sectors. And it was already mentioned sort of the real estate sector, and I’m just wondering if we can sort of dive deeper into the issue about how the financial—what are the financial risks to the real estate sector from climate change?

HILL: Well, I can take that. They’re enormous. You know, we all like to live near water, in view of water, or in proximity to wildlands. And it turns out one of the—two very damaging risks from climate change are flooding due to sea level rise and also extreme precipitation like we saw in Houston, where four feet of rain fell in a very short amount of time—and our flooding systems, our drainage systems just can’t accommodate that, so we’re going to have flooding—and wildfire. We are seeing unprecedented—we have a new word, “gigafire,” for a million acres burned, and we’re also seeing flooding at rates that we haven’t experienced in the past.

There is some new evidence that the markets are beginning to respond. For example, higher land in Florida is going for higher prices. But we’re also seeing multimillion-dollar condos sold right on the beach. And there are a number of factors that are, in my opinion, propping up the real estate market right now.

One is our federally insured flood program, which is essentially bankrupt because it does not charge actuarily sound prices. Carolyn is a deep expert in this area.

And the other is that we don’t have good disclosure laws for what flooding has occurred to a building. In about a third of our states, there’s no requirement that there’s any disclosure—including in Florida—of prior flooding. And if your building’s flooded once, likely it’s going to flood in the future. In New York, you can pay $500 not to have to disclose your prior floods to your home, so as a seller that’s a great advantage. For a buyer, that’s not so good.

And we do not have national mapping from FEMA that reflects future risk. We have a philanthropy that’s stepped into the void. They’re mapping future risk. If you want to find out about your home, you can go to the First Street Foundation and type in your address and you’ll see how much flood risk you face.

But we don’t have anything similar for wildfire and we don’t have future-facing maps. We have maps that reflect historical risk, but not these big fires that we’re getting.

So it’s a pretty delayed reaction. Difficult to learn what your vulnerability is, what the risk(s) are. Probably for sophisticated financial players they have access to greater modeling, which is usually you have to pay a price for, and they have greater access to information. But if you’re just an ordinary homeowner, it can be tough to figure out what the pricing is on this. And I think there’s been a lag because of that in the real estate markets.

CROFT: Alice, could I ask you a follow-up question on that? It’s a question about, like, what should the role of the federal government be in terms of, you know, should they withdraw support for development in high-risk areas?

HILL: Well, we have a huge moral hazard that has developed. Basically, the federal government since Dwight Eisenhower’s time has gone from providing really no aid to state and local communities that suffered a terrible disaster—the federal government would direct them to the Red Cross or other nonprofits—but in Dwight Eisenhower’s time that paradigm shifted, and it has shifted so dramatically in the last seventy years that now the federal government is paying anywhere from 70 (percent) to close to 100 percent for some of these disasters. It was Hank Paulson who called these climate bailouts.

And no matter which side of the aisle you’re on, if you’re a fiscal conservative Republican or a Democrat, it’s really hard for an elected official to say, oh no, I don’t want any of those federal funds because that’s bad for the federal deficit; I want to have my constituents not get any aid from the federal government. Hank Paulson recognized that’s not going to happen, and so we are now in this era of just full-on open spigots for the U.S. to bail out communities. And the Government Accountability Office has called this out repeatedly, saying it is a high risk to the federal treasury to continue down the path we have with dealing with climate-worsened events and just having the government come back in.

And the hazard is the locals all decide what the land use is and what the building codes are, and there’s no requirement for them to have disaster-resistant building codes or land-use policies. So there’s the moral hazard. They want to get all that tax revenue, and that means that the federal government is left cleaning up the mess when poor land-use choices are involved and for building codes.

CROFT: Carolyn, do you have thoughts on this, on the real estate sector?

KOUSKY: Yeah. I mean, I think, you know, Alice is exactly right that we’re starting to see these risks really starting to materialize in a very real way, and that historically our disclosures and communication about these risks has been incredibly insufficient. So you really had had inefficiencies in the housing and mortgage markets because there’s been a lack of information and transparency about the risks at a property level, and I think we’re sort of just at the beginning of that really starting to change. But in the face of these kind of dynamics that we’re seeing in response to escalating risk, we need to start thinking about what regulatory and policy interventions can help us, you know, transition away from areas that become uneconomic and that minimize the total cost imposed on residents and communities from these climate-related disasters.

And I think, you know, an important first step is acknowledging and pricing the risk, right? And we’re starting to see some interest in this in the federal level. The Federal Housing Finance Agency just this past January, I’m sure some folks have seen, issued a request for input on the risk of climate change and disasters to housing finance markets, the GSEs are starting to look at this seriously, and there is that growing research that Alice mentioned about these impacts. So I think we’re really at an important policy point in determining how we’re going to start to help these markets actually address the changing risks.

CROFT: Now I want to take up an issue that you’ve written so extensively about, which is the insurance sector and how climate change is really threatening the insurability from many angles. Can you, like, you know, bring us up to speed on that? And I was really struck by, you know, you gave this great talk and you talked about the fact that, like, 44 percent of Americans don’t even have $400 to cover, like, an emergency, and just the insurability gap when it comes to climate disasters or any natural disaster.

KOUSKY: Yeah, no, you’ve hit on a really important—(laughs)—challenge, which is that as our climate disasters are escalating, insurance becomes even more important because we could talk about why other resources at a household level are often wildly insufficient or delayed, and so in order to really recover from these disaster events people need insurance. And so at the time that insurance is becoming more important, those very same events are stressing insurance markets, right? So as extreme events have increased in frequency or severity, there’s now growing questions about whether specific perils or regions of the world are going to essentially become uninsurable in the future, which essentially means we can’t transfer that risk at any price point that people could afford.

So, for example, as Alice mentioned, we’ve seen stress in the California homeowners market after the severe wildfire seasons of 2017, 2018, 2020, right? In these years much higher numbers of structures burned, and that’s imposed large costs on the industry in a way that’s, you know, not very sustainable, which has also led to, you know, an increase in non-renewals. I think they were up like 10 percent in high-risk areas. The number of people who had to go into the state California FAIR Plan to get—just find coverage at all increased significantly. The insurance commissioner had to put in place moratoriums on these non-renewals. So we’re really starting to see that stress and insurers asking the question of whether we’re in this new era of catastrophic wildfires that’s going to continue.

And I think you can look at other perils too, right? Some areas of the coast are going to start seeing flood risk, sort of chronic risk—that sunny-day coastal flooding—that just happens all the time. And when you have something happening all the time, it’s not a risk anymore; it’s a certainty. And so you’re out of the realm of risk transfer and you really need to be thinking fundamentally about risk reduction.

Which is really just the last point I want to make on this, which is that I think we really need to think about risk transfer and risk reduction as complements, right, and so we need to be investing in risk reduction to make the risk transfer doable. And the fact remains that disasters have always been difficult for the private sector to insure on their own, which is why we see so much government intervention in these markets even before they’ve been impacted by climate change. And in fact, I think it’s pretty true that there’s almost nowhere in the world where there’s a fully functioning private market for disaster insurance with a high degree of take-up rate.

And the ways government intervened vary a lot. You know, in the U.S. we have the flood insurance program. We have state wind pools. We have the FAIR Plan. We have all these different types of sort of fully public or public-private disaster insurance programs, and the way those are structured internationally is even broader. So just to kind of end here—(laughs)—in my little rant here on insurance, I think in the face of escalating risk we really have these difficult public policy questions about how much of this risk we’re going to continue to subsidize and how much we’re going to use these public programs to really start sending risk signals to the markets.

VAN PRAAGH: And I think—

CROFT: Anne, I wonder if—oh, sorry. Yeah.

VAN PRAAGH: I think Carolyn raises a really interesting point. As we saw with the pandemic, the U.S. response was very much a patchwork relying on state and local for solutions and for really actionable plans to get vaccine out, to deal with the health impacts, to address local market issues. And I think if we leave climate to the same configuration or the same local and state response, we’ll get the same kind of very patchwork response in mitigation and adaptation. And so that will leave the U.S., you know, I think in a weaker position relative to some other countries globally in the way that we handle these kinds of risks, in the way we respond to shocks, and the way we react to what is expected to be increasing likelihood and severity and frequency of climate-related shocks.

CROFT: Anne, how is your team at Moody’s sort of specifically approaching credit ratings related to these issues?

VAN PRAAGH: Yeah. So credit ratings are, obviously, you know, very much focused on the ability and willingness of companies or countries to repay their debt. And so when we look at climate change, we’re thinking about, well, what are the material risks emanating from climate change that might impact that ability and willingness to repay debt.

And from that standpoint, you know, we are thinking about what is the level of exposure for a particular company or a particular sector. What we did was we started by rank ordering sectors, and we looked across eighty sectors globally with 80 trillion (dollars) of debt outstanding and we said, who’s very high, high, medium, low exposure to environmental risk? And then we said, well, for each of those sectors and issuers within those sectors, the debt issuers within those sectors, what is the level of exposure at the company level? What are the mitigation steps they’re taking to address either on a precautionary basis or on a remedial basis? And then kind of what’s the urgency of response we’re hearing from the management team to deal with not just the near-term, but medium-term issues? And then, longer term, how do these companies or countries kind of reposition themselves? How do they retool their business model or reconfigure their economy to basically, you know, address the risks that we see on the horizon?

So that’s a high-level approach. There are some sectors and companies that have been at this for a long time, as I alluded to at the beginning.

Utilities is probably one of them. We’ve seen, you know, fairly aggressive efforts to move from carbon-intensive activity to low-carbon or carbon-neutral, to move to renewables, to change the business models and the mix of products that they rely on.

The auto industry we’re seeing the same—you know, a lot of change and adapting to the risks that they perceive, not only because they’re asked to—regulatory and policy measures that are asking them to react to that—but also investors are asking them to shift, consumers are changing their preferences, and we’re seeing some technology-driven change as well. So today an auto manufacturer might have a particular mix of, say, SUV, gas—you know, gas-powered vehicles. Ten years from now, that mix will probably shift heavily away from gas-powered into battery/electric vehicles. But the path on how those auto companies get there is what we’re thinking about and trying to quantify the risks associated with that change of business model.

So that gives a little bit of a flavor, but we have a very sector-specific approach. And you know, happy to share more details on that if anyone’s interested.

CROFT: Now, before we open it up for questions I just wanted—almost like a lightning round before we open it up—is to ask about sort of recent government policy action. I mean, what do you think is notable in terms of what we’re seen in the stimulus? What are you expecting to come in terms of potential follow-on infrastructure bills? Sort of walk us through, you know, where you see the policy path going.

HILL: Well—

CROFT: Who wants to take—Alice, can you take that?

HILL: I’ll start. Sure.

CROFT: OK.

HILL: I think we’re going to have regulation on disclosure. We’re going to have real pressure to disclose physical impact risks, corporate disclosure either through the SEC or otherwise focusing perhaps on the materiality provision, as well as transition risks.

I think we’re also going to see greater pressure worldwide for what does ESG mean. You know, we’ve created an alphabet soup of ratings for these products, but there’s a real question about what’s behind an ESG offering. They’ve just exploded in the past years to over a half-a-trillion dollars’ worth of offerings with ESG attached, but really a question and even from both sides of the aisle whether the buyer understands how green that offering could be. And I think we’ll see huge movement to get some standardization so it’s not just really considered a fraud to sell something that does not encompass ESG values, as they’re commonly understood. A little like saying your product in the grocery store is organic and then it turns out it’s in a pesticide-filled field. So who’s monitoring that? We’ll see more there.

CROFT: Carolyn, Anne, any final thoughts before we open it up?

VAN PRAAGH: Yeah. I think just looking at the Biden administration, the first hundred days, climate is one of Biden’s top four issues along with COVID-19, the economy, and racial equity. It checks multiple boxes. Beyond tackling climate change itself, it really helps to bridge the difference between the progressive and the moderate wings of the Democratic Party. It potentially helps to create jobs. You know, would be a major part of an infrastructure bill if we get one. Didn’t see a whole lot in the current stimulus bill that’s working its way through now, you know, voted on by the Senate and now the House, but the next installment of a stimulus package later this year, would expect it to include clean energy and infrastructure provisions.

The climate world summit will convene in April. There are efforts to reverse some of the environmental rollbacks that Trump’s executive orders on emissions put forward during the Trump administration. Department of Justice will have its own Environmental and Climate Justice Division. There will be a clean energy plan with 2 trillion investments in renewables and clean energy. So I think there is a lot to watch on the policy front.

On the regulatory front are a number of initiatives coalescing around standards for disclosure, and it is alphabet soup as Alice mentioned. And I think there are—there is strong private-sector movement, as well, to try to get quantification of the risks and to understand better on a forward-looking basis what will be the cost of these risks to companies, how it will impact their profitability, and ultimately their valuations. And that’s not fully priced in at the moment, and it’s something, you know, ultimately gets at the question of the day, the financial impact of climate change.

CROFT: Carolyn, thoughts on what we’re seeing in terms of recent policy action?

KOUSKY: Yeah. I’ll actually talk about what I hope becomes recent policy action—

CROFT: OK. (Laughs.)

KOUSKY: —which is, you know, I think the sort of—all the sort of increasing climate-related disasters that we’ve been talking about here has really put a spotlight in a way that there hadn’t been, I think, for a while on our federal disaster response and recovery programs. And we need some really significant reforms in those areas that I think are finally coming to light and hopefully might be addressed in the next couple years. Clearly, they’re not, you know, the immediate priority. Dealing with sort of COVID and getting our climate policy going, but I hope after that they’d be addressed.

So this is things like it is incredibly difficult and time consuming and complicated to navigate our disaster recovery process, and lots of vulnerable people and people who really need assistance are left out of getting it because of those challenges. So we need to see some simplification and some streamlining.

We’ve also—historically, like, 90 percent of the federal dollars that go into reducing risks—so this would be any resilience and climate adaptation stuff—was always funded in off-budget disaster supplementals, those huge bills that Alice mentioned at the beginning, right? That funded all our risk reduction. And I think we’re starting to see that people are understanding we need to be shifting some of those federal dollars to a pre-disaster context when we can be more careful and deliberate with the type of projects that we’re investing in and direct those dollars in a more equitable way.

And I think equity, you know, that’s also a big theme, you know, as Anne was mentioning, for the Biden administration, and that lens needs to be brought to our disaster recovery as well. So, for example, the National Flood Insurance Program’s going to be rolling out new pricing as long as everything stays on track this fall, and that is really long overdue and really important. But at the same time, we need to be standing up a means-tested assistance program to help low-income families afford insurance because the people who need the insurance protection the most—because they don’t have savings, they’re locked out of credit—are the very people who can’t afford it. So I hope we also see some changes along those dimensions.

CROFT: Excellent.

Carrie, I think it’s now time to open it up for questions. Will you walk us through how we can ask a question?

MODERATOR: We will take our first question from Chris Yegen. Please accept the unmute now button.

Q: Got it. Thank you. Chris Yegen, the Yegen Companies, New Jersey.

Isn’t it time that the federal government stop being the court of last resort for homeowners whose homes are consistently damaged and destroyed by weather conditions that are—have existed for a long time, before we ever really got to the point where we are now? And we allow them to rebuild in the same places and continue to be—to be insured in the same program, so we pay for them multiple times. Can’t we stop that?

CROFT: Who wants to take that question? Alice?

HILL: I’ll start. I think that would be the goal, getting back to Helima’s earlier question, is how can we use federal policy to encourage state and local governments to make better decisions about land use and how and where people build.

That’s a highly politicized topic. And when you mention, for example, managed retreat, in most communities those two words are treated as dirty words. You can look up what happened in Del Mar when the Coastal Commission in California told it to come up with a managed retreat plan. The community was going to have nothing to do with it.

But we do have one really sound example of the federal government pulling itself out of risk—supporting risky behavior, and that’s along our coastal barrier islands. In the 1960s the federal government said these islands are too vulnerable, they’re going to get too damaged; we’re just not going to subsidize development there and we’re not going to pay for damages when disasters strike. We are basically pulling ourselves out of those areas. You, state and local communities—and really, under the Constitution it is the state and local communities who get to decide these decisions—we told them, you go ahead but we’re not going to give you federal dollars to support that. And if you step back, I think that should be the broad policy of the United States. Local community, you want to make these risky and continue to engage in these risky practices, including—New Jersey’s probably often cited as an example for this, but the—recently, the governor has said he’s going to pull it back. But if you want to engage in this, local community, you will not get federal dollars. It’s really hard to say that post-disaster, but you can give a lot of incentives to people to change their ways pre-disaster, to start that pulling back, and that’s what the federal government needs to do.

It’s just extremely difficult politics, honestly. Resilience—if we think it’s hard to pull back from carbon emissions, when you start talking about where people can live, how they can live, it gets very tense very quickly.

KOUSKY: Can I add on to that? Because I agree with everything else, and I’ll just add the flood insurance perspective on this as well because some of these properties are ones that we continue to insure through the federal program, which a private company would never continue to insure. And so I think we do need to think about changes from the flood insurance side as well.

One of those has to start with what we were talking about before, which is just getting information out. So right now, for example, I heard this sort of heartbreaking story after Harvey where a woman had purchased a home and she said she had been disclosed that it was in the special flood hazard area—that’s federal law, right—but she didn’t really know what that meant. It then flooded in Harvey and she found out that the flood from Harvey turned her home into a repetitive loss structure, which is a designation in the flood program, right, for these properties that flood all the time. It kicked in higher rates and all sorts of things, but she said—which I thought was, you know, really kind of hit the problem on the head—is if someone had told me this was a repetitive loss structure, I never would have bought it, right? And that’s the problem. People are making suboptimal decisions for themselves, you know, in where to live, and so our housing markets aren’t incorporating that information, and then people are trapped in risky locations. So I think we need to start by doing a much better job of disclosing repeated flood history and so forth.

And then the question of whether we should consider insuring these ones is one that comes up, and I think it’s a—you know it needs to be really grappled with. Whether at some point we say enough’s enough and maybe you couple it to some sort of means-tested assistance for relocations and for mitigation, our attempts to do that in a voluntary way right now have been really plagued by the fact that getting federal dollars for, say, a buyout of a relocation post-disaster takes so long and families can’t wait, right? So we can’t say to someone whose house has just been destroyed who has—they don’t have enough money to keep up that mortgage and pay somewhere else to live. Sorry you have to wait three years till the buyout dollars come through, right? That just doesn’t work. So we have to be figuring out a way to make those policies actually available on the timeline of disaster recovery that families need, you know, which will take some doing.

CROFT: Excellent.

Let’s move on to the next question.

MODERATOR: We’ll take the next question from Liz McKeon.

Q: Hi. Thank you so much. I’m Liz McKeon with the IKEA Foundation, speaking to you from Europe tonight. And I want to thank all of the speakers for addressing the financial consequences of climate in such a comprehensive way, both in terms of material and transition risk.

I’d like to focus my question on one specific part of the financial sector value chain, because of the many risks that we see the one that could potentially could result in the most widespread loss of economic security, especially for the economic class, would occur in our private pension system where there are trillions under asset—asset under management. Some believe that pension managers on their own are going to navigate this as part of their prudential regulation, but many of us in philanthropy feel that the sector is far behind in developing standardized approaches, benchmarks, and indices, and if we don’t have a more harmonized approach soon we’re potentially looking at volatility when these assets start shifting and lurching back and forth. So what is your view on this? And how do you see the best way for philanthropy to help move in and help the sector approach this ten-year horizon risk a lot quicker?

CROFT: Anne, would you like to take that question?

VAN PRAAGH: Sure. I’m not sure about a role for philanthropy, but I could—I could just point out a few things that I think are happening in the disclosure realm that might give you an indication of the direction and that might be something to look for if you’re—if you’re thinking about pension funds and how they’re managing assets, as you say, for so many retirees.

I think that we will start to see more actionable information come through disclosure. We will start to see information that is more scenario analysis driven. And we’ll start to see some regulatory measures that require these things to be put into place.

So when it comes to scenario analysis, we’ll start to see that climate risks are actually being quantified under different scenarios, and that’s really important. We need to be able to see what happens in a fast transition, in a slow transition, and in a kind of a baseline. That is really key to our understanding of what the risks are.

We need to be able to see that effects of different kinds of physical risks on cash flow and on economies. So if that means, you know, what happens under increasing temperatures or more severe droughts or rising sea levels, a lot of those things are already locked in for the next thirty years, and we know that because of the way greenhouse gas emissions get caught in the atmosphere and they can’t really escape and the world doesn’t really process them as quickly as it needs to be able to. So we know the physical effects of climate change are real, they’re—but we need to be able to actually quantify them.

We also need more granular local information—so asset-level information, company-level information, sector information. You know, what I want to know about a utility is probably different than what I want to know about an auto company which is different than what I want to know about, you know, insurance companies’ exposure.

And then we need consistency. We need globally consistent standards that we can compare these assets across the globe, across regions. I know that the caller was from Europe. We need the same framework that—in Europe as we use in the U.S. and in developing economies.

And then we need things to be forward-looking. We need to assess where we are today, where we’re going to be five years from now, and where we’re going to be ten years from now.

So I think those are the kinds of conversations that we should be having with, you know, asset managers, with pension funds, with insurance companies on exactly what’s on their balance sheet, how are they assessing them, how are they valuing them, so that we don’t get these kind of very volatile asset values, that we start incorporating what we see as the risks today. Our models and our sophistication around these things will improve over time, and they have improved, but that’s a journey. So I’ll leave it at that.

CROFT: OK. Next question, please.

MODERATOR: We’ll take the next question from Shumi Khan (sp).

Q: Hi. Helima, hi. Haven’t seen you in a while. Great panel. Thank you.

CROFT: Hi!

Q: How are you?

I’m calling from Michigan, but my question is actually regarding Bangladesh. And looking at—the question is: Looking at the—what do you guys think about U.S. foreign assistance being tied to perhaps better climate policy? I know you mentioned the Biden administration’s kind of platform and looking, and there are a lot—there’s a lot on their plate. But in my experience over the last ten years working and living in Bangladesh, I really haven’t seen U.S. foreign assistance being as closely tied to good climate choices as I think it could be.

And so, for example, in the context of Bangladesh, the central government has done a great job of trying to electrify the—you know, the country. On the one hand that’s great, but what I’ve seen is for renewable energy—and I sit on a solar—one of the largest renewable energy companies in Bangladesh, and what happens is oftentimes these—the government policy is diametrically opposed. And so exactly—even though it’s well-meaning in countries like Bangladesh, which is amongst the most climate impacted, it is—makes sense to invest in renewables, but at the same time the government has an economic development kind of platform.

And so I’m wondering, what do you think? Is there a role that U.S. government assistance or other kind of foreign assistance can play to kind of really encourage more investment in renewables and others?

CROFT: That is an excellent question. Alice, would you like to take that?

HILL: Sure.

Well, I think you will see a sea change from the Biden administration on this topic. There is great recognition that in order to plan and prepare for the risks posed by climate change, including the national security risks, our development and our diplomacy must be involved in making those assessments. So you’ll see much greater emphasis, in my opinion, on helping local governments and communities protect their populations against severe events. And there’s a lot of reasons why we want to do that, but that’s including to reduce the number of people who are displaced by these events because, as more and more people lose their livelihoods and their homes as a result of a flood or a slow-moving emergency like a drought, those that can move will be on the move in many instances, which is highly destabilizing internally within the country and then if they cross borders.

So I think it was Jim Mattis who said when it comes to these types of issues we need to give more money to the State Department to help people in country. If we don’t, then the United States will simply have to buy more bullets. And that’s not where we want to end up. I think it’s very clear that’s not where the Biden administration wants to end up. On day one, President Biden resurrected an executive order that I’m proud to say I developed on national security and climate change, and it specifically focused on what do we do to reduce the risks in other countries. And that means we need to have our aid be designed to help communities thrive in a warmer world.

CROFT: Carolyn, Anne, anything you’d like to add on that?

VAN PRAAGH: I guess, you know, Bangladesh is actually a great example because it’s a country that is very low lying. It has relatively poor population, weak infrastructure, and it doesn’t have its own wherewithal to respond to the kinds of physical effects of climate change that we’re likely to see. So we actually scored Bangladesh as very highly negative from an environmental risk perspective.

But I think it raises a lot of interesting questions around what we’re seeing with multilateral development banks, as well as bilateral country support, is that climate is becoming part of the conversation today where it really hadn’t been in the past. So I think not just in the instance of Bangladesh, but I think in a lot of other countries that face a similar combination of risks and needs, it’s a situation where the—all of the capital flows to that country, the multilateral support to that country, and the bilateral support to that country will be—that climate will be part of that conversation.

CROFT: Next question.

MODERATOR: And we’ll take the next question from Michael Gillette. Mr. Gillette, please accept the unmute now button.

CROFT: Michael, do we have you there?

(No audible response.)

MODERATOR: Since we’re having some technical difficulties, we’ll move on and take our next question from Louise Shelley. Please accept the unmute now button.

(No audible response.)

We’ll move on once more and hear from Bhakti Mirchandani.

Q: Hi. Can you guys hear me?

CROFT: Hi, Bhakti. How are you?

Q: Great panel. Great to see you, Helima, and great panel, everybody.

If you could wave a magic wand and have the type of regulatory requirements that you think would be necessary from companies and investors, what would that be? Would it be having someone on the board, adopting TCFD? What ideas do you have?

CROFT: Carolyn, let’s start with your magic wand.

KOUSKY: That’s a really good question and one I hadn’t thought about before. I think it would be—you know, I think it would be something having not just disclosure, but meaningful analysis of the impacts of risks, right, which really require sort of tailored scenario analysis for the individual firm. And frankly, I think that’s something, actually, the public sector needs too. I think we need to be doing very similar things for the fiscal impacts on municipalities and states as well.

But that’s—you know, it’s not an easy lift to do that, right? It requires really good climate models with downscaled projections for where, you know, you’re located, and then coupled with the economic analysis of what those impacts mean sort of economically and fiscally for you specifically. So it’s a big lift, but it’s important to start getting a handle on it to develop appropriate risk management plans.

HILL: If I—

CROFT: Anne, what’s your magic—yeah?

HILL: Oh. Well, I just wanted to add, and this goes to Liz’s question as well.

I think we need to focus on who’s on the boards. New York Business School—Stern Business School did a study in 2019 of the Fortune 100 companies and looked at the publicly available résumés of all the directors. It found, of the 1,188 directors, only five—not 5 percent, five—had any experience in climate environmental issues. And that’s not surprising—given the age of those average directors, probably they never received any formal schooling on climate change simply because climate change really wasn’t on the horizon till 1992. And if we have boards of directors who don’t understand the accelerating nature of climate change, that it affects everything in the system, that all our systems are built on the no-longer-correct assumption that the past may safely guide our future, it’s not surprising that there’s a lag in the markets because it simply isn’t well appreciated what’s at stake.

So to the philanthropy, to really gin up the education of those—our decision-makers so that they understand the nuances and the complexities, but also the urgency of changing how we do business in the face of really growing/ballooning climate risks.

VAN PRAAGH: That actually resonates well with one of the findings of a study that we did a couple years ago where we looked at companies. And where we had actively involved board-level decision-making and oversight of climate-related disclosures and risks, we saw better quality disclosures. We saw better, carefully, you know, framed and discussed and quantified disclosures. And as seldom as the quantification of these financial impacts are in disclosure, they were better when the board was involved. So I think that is consistent, Alice, with what we’ve seen.

KOUSKY: Could I may be add on to that, too?

CROFT: Sure.

KOUSKY: Because I think that talking about interdisciplinary education is also really important. And to tackle climate and also to tackle sort of the range of environmental challenges the planet faces right now, you need people who are sort of not just trained in business or economics or whatever their thing is, but also understand the environmental science and the climate science side of it—not, you know, at the level of a—of a climate scientist, but enough to know how to design appropriate solutions and response. And that’s—you know, we don’t typically do a lot of that type of interdisciplinary training, and it’s important.

CROFT: Excellent.

I think we have time for maybe one or two more questions, so maybe we can do rapid fire. So can we maybe get one or two more questions and bundle them together?

MODERATOR: Sure. We will take our next question from Toby Gati.

CROFT: Toby?

MODERATOR: Mr. Gati, you may go ahead.

(No audible response.)

All right. Moving on, we will take our next question from Steven Cass (sp).

Q: Thank you.

To be brief, what do we make of corporations that are on the one hand prepared to have much more climate disclosure, on the other hand use all their immense lobbying efforts to reverse and dilute environmental regulations with respect to climate change?

CROFT: OK. So we’ve got one on corporations, on disclosure and—versus the lobbying efforts. And then one more question. Can we bundle them with one more?

MODERATOR: We’ll take another question from Nili Gilbert.

Q: Hi. This is Nili Gilbert, co-founder of the Net—

CROFT: Hi.

Q: Hey, Helima. (Laughs.) Co-founder of the Net Zero Investment Collaborative.

My question is around, how can we responsibly manage offsets in a way that’s not giving companies and other entities permission to continue to pollute, but that helps us to achieve our long-term climate goals?

CROFT: I think they’re two fantastic questions to bundle together, so who wants to start? Alice?

VAN PRAAGH: I’d start and say that for the company who’s lobbying, I would say that it’s like that song, you can run but you can’t hide. (Laughter.) It’s like, it’s going to catch up with you eventually, so if it’s not regulation it’ll be investor pressure or shareholder or other stakeholder pressures that will ultimately, you know, prompt this better disclosure and better quantification of risks. So that’s my comment on the disclosure topic.

CROFT: Offsets?

HILL: Well, I’ll just jump in here generally. I don’t have any specifics.

I do think it’s going to be—we’re going to see corporations in this space increasingly scrutinized, and that will be through the pressure of regulation but also through our courts. I’m a former judge and a former prosecutor, and I can tell you that litigation of climate and climate risk has exploded very recently. It’s gone from just—2014, just twelve countries were reporting litigation on climate. That would be a case with climate in the documents. And of course, a lot of this litigation may not ever mention climate, but at the core it’s going to be these worsening impacts, these different choices that companies have made. But since 2014 we’ve gone from twelve nations to thirty-eight nations to over 1,500 cases, and the vast majority of those are in the United States. So we know that lawyers are going to educate themselves as to what’s going on, and this will be a fertile area for them to seek—either through trying to make a showcase, make a point with a particular company, or actually to seek damages, or both. And we’ll see increased liability. I think there’s—it’s fair to say that corporate officers and directors face increasing risk that they could be liable for failing to consider what climate change brings to their companies’ bottom line.

And as we move forward, this will be an area of greater interest for insurance companies looking at what kind of risk management is in place by the corporations. And it will, in its own right, motivate and force change. Of course, the rule of law moves slowly, so that won’t drive the kind of action as quickly, probably, that we need. But it will be a growing force in this area.

CROFT: Carolyn, last thoughts?

KOUSKY: Yeah, I’ll just add a comment on each of those.

On the first one, I mean, I think we are clearly far behind where we need to be in terms of decarbonization of the economy. And not this past summer but the summer before, we did this exercise at Penn where we asked researchers around the school to present climate risk solutions. And I think what I really took from that was that while it feels daunting, the sort of magnitude of the crisis in front of us, there’s something that everyone everywhere, no matter where they are, can do to be proactive on this issue, and I think we need to kind of take that responsibility.

And when it comes to the private sector and lobbying, I think one of the most important things just personally is that we need the private sector to be standing up as strong advocates for carbon pricing. Carbon pricing is clearly insufficient—we need a lot more—but it’s also necessary, in my opinion, as a(n) important first step.

On the offsets question, I think that raises a lot of really interesting questions. A colleague and I are starting to do some work on how to deal with land-based and forest-based offsets that, you know, like in California could burn or like—(laughs)—you know, and then you’ve kind of lost your contribution to carbon there. And I think there’s also a number of questions, too, about how to make them not only effective for tackling—for climate change, but also to help solve our biodiversity crisis, which is also—I don’t know if folks have seen, like, the recent Dasgupta Review, but is also like—(laughs)—a very critical thing. So can we get some twofers here? I don’t—I don’t know the answer, but that would be the hope.

CROFT: I think that is an excellent note to end this fantastic conversation. I would like to thank all of our participants who dialed in today. Thank you for your fantastic questions. I’d like to thank the panelists for a truly outstanding discussion.

Please note that both the video and the transcript will be posted on the CFR.org website. And we hope that you can join us for tomorrow’s symposium session featuring Larry Fink of BlackRock, and that will be taking place tomorrow from three to four p.m.

So thank our panelists and thank you for joining us today.

(END)

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.