The Climate Shockwave Continues: The Role of Capitalism

It’s been just over a year since I wrote “The Climate Shockwave Felt Around the Street,” but it feels like a solid decade. That story went on to be published in numerous publications, including The Startup, and I thought it’d be fun to revisit the topic since Mr. Fink is back in the news with his annual letter. I wrote the piece just before what we now know as Covid-19 wreaked havoc across the globe. I’ll forgo any additional pandemic talk as we’re still living it and fatigue seems to be at all-time highs.

Last year, many on the street called Blackrock’s bluff on climate change, brushing the call to action aside as little more than a gimmicky attempt to be on-trend and satisfy the growing swath of millennial investors entering the marketplace. I must admit, I was a little skeptical as well, but I felt sincerity and a sense of urgency in Mr. Fink’s comments and took him at his word. He has not relented. A year removed from his previous letter that took the street by storm, Mr. Fink is doubling down, now declaring that we’re in the midst of a

“‘long but accelerating transition…that will reshape asset prices of every type.”

Blackrock is setting ablaze boardroom seats across the country, stating, “We expect you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.” Make no mistake, this is not a request…this is a stern warning, and for me, proof that capitalism is working!

Let’s rewind a year to early 2020 when Mr. Fink’s annual letter got the attention of investors and corporate leaders alike. Since then, companies like Microsoft, Salesforce, and Delta Air Lines have made meaningful commitments to becoming carbon neutral (or negative) in short order and pledging large sums to combat climate change. These promises weren’t necessarily a direct response to Blackrock. After all, consumers are demanding more from companies than useful products at affordable prices. Still, the leadership of Blackrock, the world’s largest asset manager, is significant and cannot be ignored.

It’s not just tough talk either. In 2020, the firm voted against 69 companies and 64 directors for climate-related reasons and put 191 companies “on watch.” Also, Blackrock is quickly adjusting its active management processes by including metrics for tracking a company’s environmental impact and excluding companies that do not pass muster. In other words, if you arent making an effort to do your part, you’ll be excluded from some of the world’s most popular investment funds. This change is happening, and it’s happening now. Companies that fail to adapt will be left behind by both consumers and investors, clinging on to a past that won’t serve them well in the future.

Mr. Fink concluded his thoughts on climate change with:

“I have great optimism about the future of capitalism and the future health of the economy — not in spite of the energy transition, but because of it.”

Nailed it! I’m hopeful for the future, expect one day that innovation and capitalism will get some credit (even if they also deserve some blame) for solving the climate problem we are faced with today.

*This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from James Vermillion, and all rights are reserved.