BlackRock Demands Corporate Response to Climate Change
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Larry Fink, CEO of the world’s largest asset management company, BlackRock, explicitly addressed climate change for the first time in his annual letter to CEOs this year. His letter, released in January 2020, titled “A Fundamental Reshaping of Finance,” sets the tone by stating that climate change “has become a defining factor in companies’ long-term prospects.” In the letter, BlackRock asks all of the companies in which it invests to publish a Sustainability Accounting Standards Board (SASB)-aligned report, and disclose all climate-related risks in line with the Task Force on Climate-related Financial Disclosures (TCFD)’s recommendations. And they want it done this year. But given the current state of the world, how does ESG really factor in?
ESG in a COVID-19 World
The “S” in “ESG” (Environmental, Social, and Governance) has become more and more prominent these days when discussing how companies can help their stakeholders navigate through the many unprecedented challenges that the COVID-19 pandemic has wrought. Many of the world’s leading sustainability frameworks, including the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), have voiced that ESG concepts are more relevant now than ever. Disclosure systems such as these do not exist simply as a check box. Sustainability disclosures exist to help inform business strategy and risk management, both of which are catalysts to predominant issues that the pandemic is bringing to the surface among companies, especially issues surrounding employee health and safety.
Employee Health & Safety as an ESG Issue
In a recent talk hosted by Business for Social Responsibility, Tim Mohin, Chief Executive of GRI, noted that many companies could have and did predict the risks of the low probability-high impact risks that a crisis such as a pandemic could bring. The companies that had robust transparent processes to assess ESG issues are generally proving to weather the crisis comparatively better than their counterparts. Sooner or later, employees, customers, regulators, and investors will want to know how companies took action during this time. A company’s response to a crisis such as a pandemic dramatically demonstrates the interconnectivity of many ESG issues and will substantially influence performance and long-term viability. For example, what companies do to help their employees feel satisfied with their worker safety and assurance is what will be remembered, respected, and repaid in increased loyalty, higher productivity, and a lasting reputational benefit.
What Can We Learn?
What resilience strategies can we learn from the COVID-19 pandemic that could be applied to the other consequential crisis that looms today – climate change? How might the meaning of materiality change in a post-pandemic world?
The International Energy Agency predicts that the COVID-19 economic recession will reduce greenhouse gas emissions this year by 8%. It is not apparent how long or severe the pandemic will be, which makes it challenging to forecast long-term emissions – and these reduced emissions should certainly not be applauded as they have been produced as a byproduct of a tragedy. In turn, what are the roles that companies must play to ensure a sustained reduction?
BlackRock Prioritizing Climate Change Issues
With BlackRock’s $7.4 trillion in assets at stake, Fink is essentially demanding that companies make a purposeful commitment to confront climate change, or BlackRock will no longer invest in them. If you have ever been in one of KERAMIDA’s training courses, you know that we reiterate that you should not report just for the sake of reporting… Fink agrees. To Fink, this duty to report (and more importantly, to change), is owed to the numerous stakeholders and institutions depending on BlackRock for long-term financial stability. He repeatedly states that the growing body of evidence for climate risk compels investors to reshape modern finance and rethink the long-term sustainability of economic growth.
The correlation between climate risk and investment risk is closer than may have at first been speculated. The relationship between these two risks is becoming even more apparent as investors heighten their theories around the ways that physical risk, in addition to policy change, will affect global economic costs, supply, and demand. It is BlackRock’s position that one comprehensive example of viable and immediate action that companies can take today is to develop sustainability- and climate-integrated portfolios.
Why SASB & TCFD?
Combined, the Sustainability Accounting Standards Board (SASB) disclosure standards and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations address climate change as both a material and financial risk to companies.
Sustainability Accounting Standards Board (SASB)
SASB was founded in 2011, and specifically addresses sustainability metrics that affect investment decisions about a company. The disclosure framework is most noted for its 70+ industry-specific categories and corresponding non-financial disclosure standards, which focus on how sustainability issues affect a company’s financial performance.
“In today’s world, businesses face a unique set of challenges to their long-term sustainability, from climate change and resource constraints to urbanization and technological innovation.”
Task Force on Climate-related Financial Disclosures (TCFD)
TCFD first published its recommendations in 2017 to help companies provide financial markets with more transparent information on climate-related risks and opportunities. “Recommendations of the Task Force on Climate-related Financial Disclosures” (TCFD Recommendations) is the source document for these recommendations.
TCFD & SASB Together
The TCFD Recommendations and SASB Standards balance one another.
The TCFD Recommendations include high-level disclosures in the areas of governance, strategy, risk management and metrics and targets across all sectors, along with additional guidance for certain sectors. The SASB Standards provide detailed disclosure topics and metrics for specific industries, focusing on the topics likely to have a material effect on the financial performance of companies within each industry. It’s no less than appropriate that these two frameworks were the reporting duo BlackRock demand their portfolio of companies to adopt.
You Can’t Have Profit Without Purpose
Almost immediately following Fink’s letter release, we started to see major corporations begin to fall in line. Two days following the letter, Microsoft committed to being carbon negative by 2030. One month later, Amazon CEO, Jeff Bezos, committed $10 billion to tackle climate change. Further, Fink’s letter is bound to put pressure on his peers at the other large asset management firms of the United States, including Vanguard, T. Rowe Price and JPMorgan Chase, to roll out equally or more ambitious sustainability requirements.
Larry Fink’s annual letter is proof that all it takes is one prominent leader to raise the stakes for corporate responsibility. If money talked last year, it’s certainly shouting this year. CEO’s who needed that extra push to develop a sustainability strategy, definitely have one now. Fink’s straightforward message was heard in every major boardroom in America – you can’t have profit without purpose.
Taking Action on Climate Change
KERAMIDA has been conducting GHG assessments and reduction strategy projects for decades, but in the past year, we have seen a significant increase in the number of companies seeking our help with carbon footprint assessments, GHG emissions reduction strategies, climate action plans, SASB Standards training, TCFD gap analyses, and sustainability reporting assistance.
We have seen growth in the demand for Climate Change services coming from small to enterprise-sized companies, in various industries, all looking to increase energy efficiency and reduce environmental impacts from their operations. KERAMIDA has developed several proprietary methods for helping these organizations, including GreenStep™, the first model to build the business case for CEOs to reduce costs and risk, and improve market positioning. In addition, KERAMIDA’s FastTrack® method creates a certifiable and complete EHS or ESG Management System, designed specifically for an organization of any scale.
Authentic Sustainability Reporting
The kind of reporting Fink called for is exactly the kind of reporting for which we have always advocated. In line with BlackRock’s decisive stance on tackling climate change, we have found that more and more of our clients want to move beyond sustainability reporting simply for the sake of good public relations (which undoubtedly is still a benefit of publishing a report), and instead, want to create an authentic, robust, technical, and principled report that articulates their plan to establish and implement action on reversing climate change.
To close in again on the current state of reporting, the global pandemic has undoubtedly elevated the importance of social responsibility. From regulators to individuals, policy to personal choices, every decision has their own implications. This holds true for companies, perhaps even most so with the extensive influence they hold.
How can KERAMIDA help?
KERAMIDA’s sustainability services continue to expand and align with the sustainability management systems which BlackRock is demanding. We offer expertise on planning and policy development for sustainability programs through an audit of the efficiency and efficacy of the policies and practices employed. We can help you map out a reporting process of your choice, including SASB and TCFD, establish an editorial calendar, and assign roles and responsibilities with deadlines for content creation and data gathering. KERAMIDA’s experienced sustainability professionals can also do the heavy lifting on content creation and data gathering, if needed. If you already have an established reporting process, we can work alongside your team in a support role to review draft content for Standard conformance and technical accuracy.
KERAMIDA provides an online FSA Level II Credential-led SASB Standards reporting training course. This course is for organizations that intend to publish a sustainability report or are currently in the process of drafting a report. Sign up for the next SASB Reporting Training course here.
Contact us today or call (800) 508-8034 to speak to our experts about how we can best serve your sustainability needs.
Contact:
Becky Twohey, Ph.D.
Vice President, ESG Strategy, Planning and Reporting
KERAMIDA Inc.
Contact Becky at btwohey@keramida.com
