In BlackRock CEO Larry Fink’s highly publicized annual letter, he asks companies: What are you doing to disrupt your business? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?”
Fink, who leads the world’s largest capital management firm, has seen a number of transformative periods in his career. The past two years have paved the way for what he sees as a period of enormous opportunity for those who seize it, and great risk for those who fail to innovate, particularly around the massive changes brought on by climate change.
Here’s his logic: Like most investment firms, BlackRock’s key constituency comprises people who have saved money for retirement. They have long-term investment horizons, and many are concerned about the environment.
Capital for Climate Change & Disruptive Models
“No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day,” Fink says. “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”
In just the past few years, sustainable investments have grown to $4 trillion and this shift is still accelerating, Fink notes, pointing out that this can be viewed as a historic challenge or historic opportunity. The profits to be made as this transition unfolds will be massive, as every industry will be permanently changed by the transition to a carbon neutral world.
Fink also points out that global financial assets have grown tremendously and now total $400 trillion, which means “young, innovative companies have never had easier access to capital. Never has there been more money available for new ideas to become reality. This is fueling a dynamic landscape of innovation. It means that virtually every sector has an abundance of disruptive startups trying to topple market leaders.”
Workplace Reset & The Need for Purpose
Social changes – especially the relationship between management and the workforce – must also be given great weight as corporate leaders figure out the best path forward. Fink argues that the coming surge of innovation and disruption will require existing businesses to reinvent themselves to survive. This won’t be possible without cooperative and efficient employees.
Today’s workers want more than fair remuneration from their employer. Companies must provide them with a purpose that displays its values and commitment to society. Mere words will not suffice. A company’s purpose must be manifested in policies, practices and investments or employees will leave, as is evident by “The Great Resignation” now taking place.
The best tool to successfully lead an organization through these turbulent times is a corporate purpose, which provides a North Star to keep an enterprise on course. It’s what guides a company’s responses to business, social, environmental and worker requirements.
Fink says his views are informed not only by his fiduciary responsibility to investors but also his decades of close observations of successful companies and their leaders. His prescription strikes me as logical and achievable. A company’s purpose is not a creative flight of fancy. There are clear processes to develop, institute and communicate them.
"The best tool to successfully lead an organization through these turbulent times is a corporate purpose, which provides a North Star to keep an enterprise on course."
Fink acknowledges a new approach to business that requires responding to powerful waves of change will inevitably draw criticism from all sides that could cause leaders to veer off course. “That is why it is more important than ever that your company and its management be guided by its purpose. If you stay true to your company's purpose and focus on the long term, while adapting to this new world around us, you will deliver durable returns for shareholders and help realize the power of capitalism for all.”
In this Chinese Year of the Tiger, which will usher in bold change, let’s all summon our inner phoenix and use purpose to reinvent ourselves, lead, and rise to meet these new challenges.