(Image: BlackRock CEO Larry Fink speaks at the 2016 Annual Meeting of the World Economic Forum in Davos, Switzerland.)
New coronavirus infections are spiking across the U.S. and around the world. Globally, 4 million new COVID-19 cases were reported last week. The U.S. alone has surpassed 11 million cases since the start of the pandemic — and hospitalization rates are now reaching record levels, with 150,000 new admittances reported on Monday. The surge in infections is prompting communities around the world to re-issue business and school closures or impose partial lockdowns, creating a new wave of economic uncertainty and leaving businesses and their employees wary about what will happen next.
We're undoubtedly in for a difficult and unpredictable winter, but BlackRock CEO Larry Fink thinks the business community is ready. Speaking at the U.S. Chamber of Commerce Foundation's 2020 Corporate Citizenship Conference on Tuesday, Fink called the coronavirus pandemic "the largest crisis in our lifetimes," but he feels business leaders have risen to the occasion. "I do believe the business community has shown more purpose than any time in my 44 years of business," he said.
As the CEO of the world's largest asset manager, Larry Fink is inherently revered among rugged traditional capitalists. But after a string of successive letters calling on CEOs to embrace business models that serve all stakeholders, not just shareholders, he is emerging as a rising star in the sustainable finance space as well. Many view his decision to speak about stakeholder capitalism as a sign the two worlds are poised to converge — and that purpose-driven and profitable businesses will soon be viewed as one and the same.
Speaking on Tuesday, Fink shared his perspective on the state of business leadership amidst the COVID-19 pandemic, and more than 1,500 people tuned in to listen. Read on for his top insights.
"For those who are earning their license to operate in every community, their shareholders are the huge beneficiary of that because when you execute that in the long run, you have very strong, durable profitability," Larry Fink told attendees at the Chamber Foundation's conference this week. "During COVID, we’re seeing this very clearly."
Research indicates that companies and investment funds with strong environmental, social, and governance profiles outperformed the S&P 500 in the early months of the pandemic. While Fink noted it's difficult to compare apples to apples when it comes to financial performance across industries, as some sectors have faced more significant disruptions than others, he agreed that businesses with a strong purpose have risen to the top. "In how we adapt, how we change, how we are trying to connect with our clients, we're proving our purpose more than ever before," he said. "I do believe COVID is only going to accelerate our clients' and our employees' desire for a stronger, more articulated business purpose."
Even before the pandemic, BlackRock and other asset mangers were noticing significant gaps in price-to-earnings (P/E) ratios among companies in the same sector, a phenomenon Fink attributes to corporate purpose.
"I've never seen such a broad divergence of P/E — we're talking 20, 30, 40 percent divergence among companies in the same industry," he explained. "If you look underneath each of those companies and see what is the reasoning for that divergence, the best companies are companies that are heavily engaged in their corporate purpose — driving their employees, driving their clients, and earning that license to operate in communities — and you're seeing that through profitability. This is becoming more and more real."
Corporate, executive and employee activism is something we at TriplePundit track closely and cover in our weekly Brands Taking Stands newsletter, which publishes every Wednesday. In the years we've followed this trend, we've seen more and more companies and their executives issue strong public statements on the issues of the day, which increasingly shape public sentiment and even public policy.
The rapid increase is no coincidence, Fink insisted. "Ten years ago and much earlier, most leaders of businesses did not want to have a voice because we all thought clients didn't want to hear your voice," he said. "In the world we live in, it's not about running away and hiding from your voice — this divergent world is about having a voice."
"When you have that voice and it connects with your clients — it may not connect with the far left or the far, right, I'm not here to suggest that — but if it connects with your clients, you can drive this," he continued. "You can be one of those companies that is creating a 20, 30 percent premium versus your peers. And that’s what we see as an investor."
Though he says he is pleasantly surprised by how many businesses have stepped up to serve communities during the pandemic — citing examples such as pledges to avoid layoffs and converting production lines to manufacture needed supplies — Fink harbors no illusions about the corporate response being above reproach.
"The first commitment we all need to have — and I don’t believe companies are as committed as they should be — is to find ways of helping improve the quality of healthcare for our employees," Fink said. "If you are not working with your employees and helping your employees feel safe, especially in a COVID world … companies are not doing enough."
In his 2020 letter to CEOs, Larry Fink called on all public companies to report on their social and environmental impact using the Sustainability Accounting Standards Board (SASB) standards. "SASB is not a perfect mechanism, but it's the best we have at the moment," Fink continued. "Since I wrote the letter, there's been a 100 percent increase in companies reporting under SASB. Why is that important to me and for all investors? Because then we can understand the social fabric of a company."
Although BlackRock has been criticized for failing to follow through on the lofty proclamations issued in Fink's letters, transparency — which Fink himself often classifies as a first step — is one area where the asset manager appears to be walking the talk: In September, for the first time since signing the Principles for Responsible Investment (PRI) in 2008, BlackRock earned straight As for transparency across all categories, a feat it claims is directly tied to its ESG integration efforts.
"We're not going to ask for miracles by any one company, but companies have to move forward," Fink went on. "I do believe the best companies are moving forward, and they're showing how they are more purposeful in their communities. They're showing how they are more purposeful with their employees. And that then drives more client activity."
Overall, the lessons we're learning about the companies that survived and thrived during the pandemic — and those that faltered — could help drive a more equitable recovery, Fink said.
"We are certainly seeing in 2020, by equity market performance, the big winners — and many losers," Fink concluded. "I'm not trying to say it's perfect. And that's one of the big issues that's going to be confronting us in 2021 and onward — that this great recession we're living in has created huge gaps in our social fabric. It creates an unevenness, and this is what we're going to have to be focusing post-COVID."
Image credit: Larry Fink speaking at the World Economic Forum: World Economic Forum/Flickr