Sustainable investing has moved to center stage in early 2020. In his latest letter to CEOs Blackrock CEO Larry Fink writes that sustainability, which involves integrating environmental and social concerns into business decisions, would be at the center of his firm’s investment approach. He also foresees an imminent and “fundamental reshaping of finance” that would better recognize the jeopardy to investment posed by climate risk and lead to “a significant reallocation of capital.”
CFOs and other business leaders might see the coming changes as a threat. Blackrock,with nearly $7 trillion in assets under management, has promised to exit investments that pose a high sustainability risk, and only time will tell what investments that will ultimately include. Fink also warned that failing to manage climate-related risks and other harmful actions “will catch up with a company and destroy shareholder value.” He added that companies that are insufficiently responsive to stakeholder and sustainability concerns will face increased skepticism and higher capital costs.
The future holds unparalleled opportunities, however, for companies that heal rather than damage society.
First, as Fink points out such companies will have an easier time attracting patient investors with a greater willingness to wait for return of capital. That is crucial given Fink’s explanation that Blackrock’s fiduciary responsibility to its clients is to create long-term value. Impatient capital renders that task difficult, if not impossible.
Second, sustainability represents a source of innovation. We simply cannot get from where we are to an environmentally, socially and economically sustainable future without an historically unprecedented amount of innovation. Paul Hawken is an entrepreneur and the author of The Ecology of Commerce, a groundbreaking 1993 treatise that took business to task for environmental damage. In the 2010 revised edition, Hawken writes that if he were rewriting the book today he “would emphasize that sustainability is one of the most certain paths to innovation for companies seeking a competitive edge.”
Third, integrating sustainability more deeply into a company’s overall strategy is a great way to grow both top and bottom lines. The late Ray Anderson, founder and CEO of the carpet tile company Interface and considered by many to be the greenest CEO in America, described sustainability in his TED talk as “a better way to bigger profits.” He also writes that “Done right, sustainability doesn’t cost. It pays.”