Sustainability has always been found in the bedrock of any sound investment strategy, but it is now prominently set in stone following a recent BlackRock announcement.
In his 2020 letter to CEOs, Larry Fink, BlackRock’s CEO, said “We believe that sustainable investing is the strongest foundation for client portfolios going forward.”
As an investment management firm that oversees more than $7 trillion in assets, BlackRock has also issued a written statement on its website that describes a new standard for investing. “By the end of 2020,” the statement says, “we intend to provide transparent, publicly available data on sustainability characteristics—including data on controversial holdings and carbon footprint—for BlackRock mutual funds.” The statement also says that BlackRock will map their “engagement priorities to specific U.N. Sustainability Development Goals.”
These developments point to the larger trend for investment managers—the desire to permanently transform the finance landscape toward greater sustainability. Brian Deese, BlackRock’s global head of sustainable investing, said in a recent video posted on LinkedIn, “The bottom line for sustainability in 2020 is, increasingly issues that have been considered nonfinancial are going to come to the core of financial analysis.” In such a transformative investment atmosphere, companies that fail to heed sustainability risks are likely to fall under extreme scrutiny and lose their position as competition pushes them out of the market and a younger generation of leaders begins to take managerial positions at investment firms.
Fink also indicated in his letter that there is no way back compared with other pending crises, and that the severity of the risks involved and the negative long-term effects are permanent if we fail to take the right action toward greater sustainability. “Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges—the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis,” he wrote. “Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis.”
Under this scrutiny and the inevitable shift of capital toward more environmentally responsible operations and manufacturing, companies must be able to assess their current situations to avoid long-term risks associated with failure to act. Many organizations don’t know where to turn for help; they might not even know where to begin to build it out. Identifying environmental hotspots is a science that requires engineering expertise, real industry data and assessment tools.
In other words, the business sector, investors and governments are evolving, and a sustainable business strategy is a key stepping stone toward not only succeeding in today’s complex business climate but also ensuring investment opportunities keep rolling in now and in the future.