You can read Larry Fink’s 2021 Letter to CEO’s here
The Opportunity of the Net Zero Transition
There is no company whose business model won’t be profoundly affected by the transition to a net zero economy – one that emits no more carbon dioxide than it removes from the atmosphere by 2050, the scientifically-established threshold necessary to keep global warming well below 2ºC. As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders – with customers, policymakers, employees and shareholders – by inspiring confidence that they can navigate this global transformation. But companies that are not quickly preparing themselves will see their businesses and valuations suffer, as these same stakeholders lose confidence that those companies can adapt their business models to the dramatic changes that are coming.
It’s important to recognize that net zero demands a transformation of the entire economy. Scientists agree that in order to meet the Paris Agreement goal of containing global warming to “well below 2 degrees above pre-industrial averages” by 2100, human-produced emissions need to decline by 8-10% annually between 2020 and 2050 and achieve “net zero” by mid-century. The economy today remains highly dependent on fossil fuels, as is reflected in the carbon intensity of large indexes like the S&P 500 or the MSCI World, which are currently on trajectories substantially over 3ºC.2
That means a successful transition – one that is just, equitable, and protects people’s livelihoods – will require both technological innovation and planning over decades. And it can only be accomplished with leadership, coordination, and support at every level of government, working in partnership with the private sector to maximize prosperity. Vulnerable communities and developing nations, many of them already exposed to the worst physical impacts of climate change, can least afford the economic shocks of a poorly implemented transition. We must implement it in a way that delivers the urgent change that is needed without worsening this dual burden.
While the transition will inevitably be complex and difficult, it is essential to building a more resilient economy that benefits more people. I have great optimism about the future of capitalism and the future health of the economy – not in spite of the energy transition, but because of it.
Of course, investors cannot prepare their portfolios for this transition unless they understand how each and every company is prepared both for the physical threats of climate change and the global economy’s transition to net zero. They are asking managers like BlackRock to accelerate our data and analysis capabilities in this area – and we are committed to meeting their needs.