6 Points We Took Away from Larry Fink’s 2022 Letter

Written By Alex Gallimore, Director & Delphine Robert, Senior Consultant

January 20, 2022

On Monday, BlackRock’s CEO published his 2022 letter to CEOs, The Power of Capitalism. The 10th in his series, and the longest thus far, the letter is getting plenty of attention, particularly for Mr. Fink’s claim that stakeholder capitalism is not “woke.”

While this statement is currently commandeering the headlines, there’s much more packed into the prose that’s worth noting. The chairman’s comments on the limitations of fossil fuel divestment, TCFD-aligned reporting, capital accessibility, and proxy voting policies are just a few of the topics that stood out to us.    

Here’s our take on the letter and its most important messages for the companies we serve. 

  1. The relationship between employers and employees is changing and human capital management must be proactively addressed.
    • The issue of human capital management received the most specific focus in this year’s letter and the commentary around it has the most notable sense of urgency. Specifically, Mr. Fink pointed to employee turnover as a human capital management effectiveness metric that CEOs must address. He recommended considering how emerging “S” issues like mental health and workplace flexibility relate to turnover and quit rates. In an environment where greater employment mobility means employees have options for finding companies more aligned with their individual purpose and values, the BlackRock CEO advises his peers to tune into “the new world of work.”
    • For its part, BlackRock will work to understand how the evolving employee/employer relationship is impacting companies and the steps companies are taking to adapt. Mr. Fink ended the human capital management discussion by posing a series of related questions for which CEOs may want to begin preparing answers. This includes how companies are ensuring the appropriate level of board oversight in this area.
  2. TCFD-aligned reporting is still very much the expectation.
    • Not surprisingly, Mr. Fink used his renowned annual communication to reiterate BlackRock’s continued desire for climate risk reporting aligned with the TCFD framework. He called out the importance of GHG target setting, specifically noting BlackRock’s request for short-, medium-, and long-term GHG emissions reduction targets. This asks companies to take an additional step beyond the TCFD’s call for a description of targets used to manage risks and opportunities and to provide an extra layer of detail in their disclosures.
    • It’s worth noting that while SASB was not mentioned in this year’s Larry Fink CEO letter, alignment with SASB or a “comparable sustainability reporting standard” is still requested in BlackRock’s 2022 Proxy Voting Guidelines.  We believe this shift may be paving the way for the forthcoming sustainability disclosure standards expected from the International Sustainability Standards Board (ISSB). The ISSB includes the combination of the Climate Disclosure Standards Board and the Value Reporting Foundation (the product of a merger of the SASB and Integrated Reporting Framework).
  3. Stakeholder capitalism is capitalism.
    • While not the only key, the “woke” comment is very much a fundamental component of this year’s letter. Mr. Fink expressed in no uncertain terms the importance of stakeholder engagement and the relationship between a company and its stakeholders. He also stated that there is still more to learn and understand about the correlation between a company’s relationship with its stakeholders and the company’s long-term value.
    • To that end, Mr. Fink announced BlackRock’s launch of the Center for Stakeholder Engagement, which will become a new forum for sharing experiences, engaging in debate, and supporting research. He writes, “In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long-term.” The new Center will provide the platform for CEOs, investors, and policy experts to further explore this concept.
  4. Decarbonization is a path, not a leap.
    • Mr. Fink explains that decarbonization is not achieved by divesting from high carbon assets, which effectively only serves to transfer the carbon footprint responsibility onto others. Rather, he reiterates that everyone has a role to play on the path to decarbonization, and fossil fuel companies are not exempt. They, too, must work on a decarbonization business strategy. And new technologies will be the drivers.
    • Mr. Fink makes note of the greater availability of capital from more sources and how this is ushering in strong opportunities for market disruptors. He then makes it clear that disruptors will not come only from the “innovative company” set and that “established companies” can also earn and wear this badge. Decarbonization, he says, must be the work of both groups.
  5. Government will need to step in to provide equitable access to energy sources.
    • The path to decarbonization requires companies to change their operations to be more sustainable and less carbon intensive, which will increase the cost of operations. The price of the energy supply will increase while the demand will remain the same, leading to inflation. All of this sets the table for government involvement, and Mr. Fink sees policymakers playing two critical roles.
    • First, governments will have an economic responsibility to reduce or handle inflation. At the same time, leaders must fill a regulatory role to ensure that decarbonization opportunities are both encouraged and required.
  6. More voices will be heard in the proxy voting process.
    • Mr. Fink writes that, “We are committed to a future where every investor – institutional, and even individual investors – can have the option to participate in the proxy voting process if they choose.” BlackRock is thus expanding technological capabilities that will empower clients to directly vote their proxies where viable. According to BlackRock, approximately 40% of the $4.8 trillion index equity assets it manages in the U.S. and U.K. will be eligible for these new expanded voting opportunities.[i]
    • We believe this could lead to voting shifts away from BlackRock’s stated voting policies. For example, multi-employer pension funds jointly administered by labor unions could take a more aggressive stance on labor or other issues.

For many issuers, the future is not so black and white.

In his usual style, Larry Fink made BlackRock’s expectations for companies crystal clear in the 2022 edition of his annual letter. Issuers, however, may not be so clear on the next steps needed to begin living up to these expectations. Mr. Fink closes by acknowledging the formidable challenges involved in meeting the often-competing interests of diverse stakeholders. And he leaves CEOs with wise words of advice—stay true to your company’s purpose and long-term mission even as you adapt to new requirements. If you need help articulating that mission and integrating it into your investor communications, let’s talk. We can partner with you to translate the recommendations in Mr. Fink’s letter into a communications strategy that works for your business.


[i] Working to expand proxy voting choice for our clients

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