Larry Fink, the Chairman and CEO of BlackRock, has become famous for his annual letter to CEOs. For several years he has been exhorting them to generate profits through purpose, rather than treating profits as the sole reason a company exists. In his most recent letter, he identifies climate change as an important factor for companies’ long-term prospects and calls on them to report how they are managing this through the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). Fink also says that BlackRock expects reporting from their portfolio companies according to the Sustainability Accounting Standards Board (SASB). He also notes what BlackRock itself is doing: “BlackRock announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities.” These are all welcomed initiatives.

Also very welcomed is the letter “Our Partnership for Sustainable Capital Markets (Our Partnership) addressed to BlackRock and all other asset managers. It was signed by Christopher Ailman (Chief Investment Officer of the California State Teachers’ Retirement System [CalSTRS]), Hiromichi Mizuno (Executive Managing Director and Chief Investment Officer of the Japanese Government Pension Investment Fund [GPIF]), and Simon Pilcher (Chief Executive Officer of the U.K. USS Investment Management Ltd). In “Three asset owners send a sustainability message,” Gillian Tett and Patrick Temple-West of the Financial Times ask the fair question of “why are asset managers so much more outspoken on ESG topics than the ultimate asset owners?” They see this asset owner letter as the answer to that since it “calls on the asset managers they use to adhere to sustainability standards and observe long-term goals that respect the interests of stakeholders, not just shareholders.”

Hiro Mizuno, executive managing director and chief investment officer of Government Pension Investment Fund, listens during the Bloomberg Global Business Forum in New York, U.S., on Wednesday, Sept. 25, 2019. The third annual Forum brings together important global leaders from the public and private sectors to address the threats from global warming to economic prosperity and examine the opportunities for solutions. Photographer: Tiffany Hagler-Geard/Bloomberg | © 2019 BLOOMBERG FINANCE LP

Mr. Mizuno is the driving force behind this asset owner letter. I remember him mentioning to me at PRI in Person in Paris last September that he was working on something I’d find interesting. Now I know what it was! The essence of the argument in Our Partnership is based on the fact that asset owners have a multigenerational commitment to fund retirements, an obligation that goes many decades into the future. Companies that are pursuing short-term profit maximization “without considering their impacts on other stakeholders” will “put their long term growth at risk and are not attractive investment targets to us. Companies and asset managers who only focus on the short term are “ignoring potentially catastrophic systemic risks,” such as from climate change and income inequality, that will make it impossible for asset owners to meet their obligations to their beneficiaries. The letter notes that an increasing number of companies are reporting according to the TCFD and SASB frameworks but that there is also a long way to go in terms of voluntary reporting and sensible regulations. Here the latter will benefit from the work of the Impact Management Project (IMP) being led by CEO Clara Barby.

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