Last January, several CAC40, Dow Jones, and other global market index CEOs received a letter trying its best to urge companies to consider the common good.The letter did not come from an NGO, but from Larry Fink, the CEO of the largest asset management company in the world, with over $6 trillion in assets. Was this a right move or completely out of place?
Whichever the case, the 2019 letter strikes a similar tone. Entitled “Purpose and Profit”, which should particularly resonate with French employers, the letter comes at a time when the French Pacte Law currently at the senate’s desk, will establish the right for companies to register their purpose in company statutes. After a long explanation on the benefits of this approach, in a perspective of overall performance of the company, Larry Fink explains how BlackRock took charge of issue in its shareholder dialogue.
Understanding the place of “purpose” in strategy and performance
“Over the past year, our Investment Stewardship team has begun to speak to companies about corporate purpose and how it aligns with culture and corporate strategy,” Fink writes, “and we have been encouraged by the commitment of companies to engaging with us on this issue. We have no intention of telling companies what their purpose should be – that is the role of your management team and your board of directors. Rather, we seek to understand how a company’s purpose informs its strategy and culture to underpin sustainable financial performance.”
BlackRock, not so exemplary
Even if the themes proposed in the letter can drive debate, it does not necessarily make them words of gospel, according to some critics. "By taking such a position, for example asking executive management to clarify its rationale, BlackRock is also laying the groundwork for investor protection in the face of its increasingly questioned fiduciary responsibility, including on climate issues," said Farid Baddache, managing director for BSR in Paris.
In addition, it should be noted that BlackRock's power over companies is limited since a portion of managed assets are in the form of index funds. Moreover, Black Rock does not always make sufficient use of its influence. Despite recently introducing a series of socially responsible funds that positively address the climate and the exclusion of coal, tobacco and firearm, the asset manager’s policies are far from exemplary.
This is exactly what the currently unidentified authors of a fake Larry Fink letter want people to know. Sent on January 16th , with a mini-site as a support, the hoax letter announced that BlackRock was planning a total withdrawal from companies engaged in fossil fuels and planned on excluding investments that were not in line with the Paris Agreement.
It appears to be wishful thinking because even if the real letter sufficiently addresses environmental issues, it fails to explicitly mention the fight against climate change. Yet these are exactly the issues on the top of international policymakers agendas, according to the report published ahead the World Economic Forum in Davos.
Béatrice Héraud @beatriceheraud