Breaking Down the BlackRock Financial Letter
The Urgency Behind ESG Reporting
If you read our previous posts breaking down what ESG is and the social perspective of an ESG, you are now equipped with the information to understand why ESG is a critical report to provide to key stakeholders and investors. Unfortunately, there may be some in your company that may not be convinced so quickly, so let's break down why there is urgency in starting to create an ESG report today.
BlackRock Financial recently sent out a letter to many big corporation CEOs to state why they should create an ESG report and forewarned that there would be ramifications if a company refused. This means that ESG will quickly become a required report outside of the European Union, where it is currently mandatory under law to disclose this information for companies with more than 500 employees.
But before we rush to a close right here, let's take a deep dive and break down BlackRock's lengthy letter and find its key takeaways.
"Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy."
This passage explicitly addresses the Environmental portion of the ESG and highlights the financial importance for corporations to become more environmentally conscious. As BlackRock further states, "In the near future – and sooner than most anticipate – there will be a significant reallocation of capital."
Financial Stability and the Future of Investing
Shifting to being more environmentally conscious is a matter of financial stability. There is no tomorrow when it comes to making a decision that will profoundly change the way your company does business. In simple terms, BlackRock's statement says that there will be a reassessment of risk and asset values as companies make decisions that have a global environmental impact.
Outside of the climate scope of the ESG, BlackRock also states the importance of Social and Governance aspects of a company by addressing the current decisions and practices companies make that neglect their stakeholders.
"...a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term."
BlackRock continues in this statement to urge business owners and CEOs that capitalizing on short-term profit is reckless and damages society and thus damages shareholder value. The key takeaway from this portion of the letter is that capitalizing on short-term profit is a terrible business decision that damages shareholder relations and confidence.
Shareholders need to know that the company cares about longevity and about long-term gain over being a one and done pop-up shop. The goal for reporting ESG data is to showcase as a company that you are moving forward and learning from mistakes to increase future profit, insight investment, and build a business model focused on conscientious longevity.
BlackRock's closing statement in the letter encompasses how shareholders view companies that refuse to embrace ESG reporting:
"Given the groundwork, we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them."
BlackRock's blunt statement is more reason than ever why your company cannot sit on creating an ESG report any longer. Take action today. Give your shareholders the opportunity to see value in your company and give your stakeholders a reason to make your company successful.
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