Over the last few years, analysts have been thirsting for data attesting that the companies their clients are investing in have been attuned to societal factors like their treatment of employees and their sensitivity to the negative effects of climate change.
Part of that lust for sustainability data stems from investors’ desire to find a proxy for alpha — the excess return above a market benchmark index. Recently, some analysts have been finding that a company’s environmental posture, an egalitarian policy toward different employee groups, and other aspects of sustainability can be indicators of the company’s earnings potential.
Now, however, Larry Fink, founder and CEO of BlackRock, an asset manager handling, as of Dec. 31, about $6.3 trillion in investments for 401(k) and pension plans, government funds, and individual investors, has gone one step further. In a letter to CEOs of companies that include those in which BlackRock invests hefty sums, Fink directly told them to make sure their companies “serve a social purpose.”
In the letter, Fink told the CEOs to “publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors.”
Such an affirmation would “demonstrate to investors that your board is engaged with the strategic direction of the company. When we meet with directors, we also expect them to describe the Board process for overseeing your strategy,” the letter said.
To be sure, that strategy must envision a path toward long-term financial performance. “To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends — from slow wage growth to rising automation to climate change — affect your potential for growth,” the BlackRock CEO demanded.
“To prosper over time,” Fink added, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Fink also seemed to affirm that, at least anecdotally, a company that operates within the pattern of sustainability indicates that it’s a well-run company — and, hence, worthy of investment. A company’s “ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process,” Fink wrote.
Not all members of the investment community agree. For instance, billionaire investor Sam Zell told CNBC on Tuesday that it was “extraordinarily hypocritical” for BlackRock and other giant asset managers to promote social responsibility among the companies they invest in.
In an interview on “Squaw Box,” Zell said, “They talk about the fact that they’re in effect going to do exactly what the market does. And then they put up public policy statements that suggest that they’re going to advocate the market doing things other than what happens every day.”
Zell challenged the notion that America is ready to have BlackRock “in charge of the NYSE,” adding that “I didn’t know Larry Fink had been made God.”