Publication

A value creation mindset

BlackRock was an early leader in offering index funds, which have low management fees and provide investors with market returns and risk levels. Yet Mr. Fink’s own language has been that of an active manager who is skilled at handling risk. He has consistently framed his focus on ESG (environmental, social, and governance) issues, climate in particular, saying that “sustainability risk is investment risk.” The company has built climate and other ESG metrics into its Aladdin software platform, using advanced data analytic techniques to demonstrate the link between sustainability and economic performance. BlackRock has continued to build actively managed funds that use these analyses to create “alpha”—returns above a benchmark index—for client shareholders. Mr. Fink expanded on this in his 2021 letter to shareholders: “BlackRock has evolved our platform over time to better position ourselves to deliver more durable alpha across public and private markets and help more people reach their goals. That’s why we are investing heavily in areas such as investment sourcing, data analytics and technology while leveraging our global scale and reach.”

BlackRock’s commitment to sustainability is embedded across its entire business: they view sustainability as an investment opportunity, not just as a matter of doing good, because sustainability helps investors build more resilient portfolios and achieve better long-term, risk-adjusted returns. The economic value creation stemming from strong ESG leadership recurred throughout the discussion, which focused on four themes:

• Guarded optimism about the global economy. Mr. Fink acknowledged that the road forward will not be easy, highlighting risks ranging from inflation to a resurgent coronavirus, but overall he is confident that innovation will address many of society’s problems.

• No quick transition to net zero. Although addressing climate change is a matter of urgency, Mr. Fink stressed that the transition to net-zero emissions must be executed in a way that is fair and just, especially to emerging economies.

• Private enterprise and government in partnership. Although Mr. Fink is a committed free-market capitalist, he believes that both national and international government institutions have critical roles to play as enablers of private investment and as drivers of policy consensus.

• Culture as the main source of board effectiveness. Boards need to engage deeply on long-term strategy, according to Mr. Fink, and that requires multidimensional diversity within the board and likely larger boards than many companies currently have. He believes it is the culture of a board, rather than more technical aspects of its structure or operation, that ultimately drive its ability to provide strong long-term leadership.