A year ago this month, the BlackRock chief Laurence D. Fink wrote a letter to the world’s C.E.O.s with an urgent message: Climate change will be “a defining factor in companies’ long-term prospects.” Underscoring his point, he added, “We are on the edge of a fundamental reshaping of finance.”

Coming from arguably the world’s most powerful investor — BlackRock controls nearly $9 trillion, making it far and away the largest such firm — this letter landed with seismic force in boardrooms across the globe. In the weeks that followed, Microsoft announced a plan to be carbon-negative by 2030, Salesforce pledged to conserve or restore 100 million trees over the next decade and even Delta Air Lines announced a $1 billion effort to be carbon-neutral in 10 years.

Still, skeptics argued that Mr. Fink’s support for the reform-minded E.S.G. movement — which stands for environmental, social and governance — was a marketing gimmick that companies would back in an economic boom but shun in a crisis. If corporate America had to pick between cutting sustainability programs or dividends for investors, the thinking went, sustainability programs would be the first to go.

Then the Covid-19 pandemic arrived and something unusual happened: E.S.G. didn’t collapse, it accelerated. In particular, the emphasis on climate change became an even greater focus within companies and among investors, who piled into the stocks of sustainable companies en masse — driving up the values of companies like Tesla and doubling the money invested in sustainability-oriented mutual funds. This gave fuel to Mr. Fink’s thesis: Green investing is profitable.

That’s why Mr. Fink’s latest annual letter to corporate leaders — which he is sending out Tuesday morning, and which was obtained by The New York Times — will once again grab attention. And this year, with an even more ambitious blueprint for businesses that BlackRock invests in, it may have an even bigger impact.

Mr. Fink is now calling on all companies “to disclose a plan for how their business model will be compatible with a net-zero economy,” which he defines as limiting global warming to no more than 2 degrees Celsius above preindustrial averages and eliminating net greenhouse gas emissions by 2050. “We expect you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors,” he wrote.

When Mr. Fink makes what sounds like a request, in truth, it is much more than that. BlackRock’s size gives it enormous influence: Mr. Fink can seek to oust directors of companies that he doesn’t believe are heeding his call and he can dump the shares of companies owned by the firm’s actively managed funds. Last year, the firm voted against 69 companies and against 64 directors for climate-related reasons, while putting 191 companies “on watch.”

Of course, the firm is unable to sell the shares of companies in passive indexes like those that track the S&P 500 (which remain a huge portion of its assets under management). But increasingly, BlackRock is creating sustainability-oriented index funds that have discretion in selecting which companies to include or exclude.

To that point, Mr. Fink said in his letter that his firm planned to adjust its investment process for its actively managed funds, adopting what he is calling a “heightened-scrutiny model” for climate risk that included “flagging holdings for potential exit.”

He also said that the firm planned to publish “a temperature alignment metric for our public equity and bond funds, where sufficient data is available” and that it would start new products “with explicit temperature alignment goals, including products aligned to a net-zero pathway.”

Business & Economy

Latest Updates

Updated Jan. 26, 2021, 5:53 a.m. ETEurope’s huge spending to keep businesses alive risks could cause economic growth to stagnate.Catch up: Leon Black will step down as C.E.O. of Apollo after an inquiry found he paid $150 million to Jeffrey Epstein.Mike Lindell, MyPillow C.E.O. and a Trump conspiracy advocate, is barred from Twitter.

This could have the same effect for investors as a calorie count on a menu for diners, a nudge toward making more informed choices. In the future, big public pension funds and other investors could have firms like BlackRock create custom indexes for them based on such data. On Monday, New York City’s pension fund said it would divest $4 billion in fossil fuel-linked assets in its portfolios.

These sorts of actions won’t sacrifice investment performance, Mr. Fink said. Sustainable funds outperformed the market last year, he noted, especially during the worst moments of the pandemic downturn. “The more your firms are seen to embrace the climate transition and the opportunities it brings, the more the market will reward your firms with higher valuations,” he wrote in the letter to C.E.O.s.

Mr. Fink’s call for greater transparency on climate risks isn’t happening in a vacuum. In the past year, as his letter points out, the European Union, China, Japan and South Korea all made commitments toward a net-zero future. And following President Biden’s inauguration, his recent executive order to rejoin the Paris Climate Agreement and plan to unveil a new climate initiative on Wednesday that includes banning new oil and gas drilling on federal land, it appears that governments could soon force the issue of corporate climate risk disclosures.

“I urge companies to move quickly to issue them rather than waiting for regulators to impose them,” Mr. Fink wrote about companies disclosing their net-zero plans. And his disclosure push isn’t just for public companies.

“If we want these disclosures to be truly effective — if we want to see true societal change — they should be embraced by large private companies as well,” he added. “We believe that issuers of public debt also should be disclosing how they are addressing climate-related risks.”

Already, several organizations are trying to create a uniform standard for climate disclosure. A group called the Task Force on Climate-Related Financial Disclosures is jockeying with the Sustainability Accounting Standards Board to become the global standard, while a group within the World Economic Forum led by the Bank of America chief Brian Moynihan is announcing its own disclosure standard for E.S.G. on Tuesday. Mr. Fink, rightly, says there should be only one standard, and he has put his support behind the Task Force.

In truth, despite the best intention of companies to reduce their carbon footprints, many rely on buying what are known as carbon offsets. This might entail, for example, a company paying to protect a forest that is about to be chopped down as a way to offset its own emissions. The problem is that the carbon-offset market remains sketchy, with few legitimate auditing programs that track whether that forest was really in jeopardy. Mr. Fink acknowledged that there was still work to be done on developing and auditing the right measures to use in gauging climate commitments.

Mr. Fink is hardly without critics. Environmentalists say that he is isn’t doing enough and that BlackRock should divest from all fossil-fuel companies. The activist groups Reclaim Finance and Urgewald published a report this month showing that the firm still held $85 billion in assets connected to coal. “BlackRock has a major problem with its passively managed investments, which make it widely exposed to coal assets likely to become stranded,” the report said. BlackRock, for its part, has said that it can’t sell stocks that are part of indexes and that it has tried to work behind the scenes with coal companies to encourage them to adopt cleaner technologies.

In his latest letter Mr. Fink said he was encouraging companies to think about the climate in the context of other initiatives serving a broader set of stakeholders. “Questions of racial justice, economic inequality or community engagement are often classed as an ‘S’ issue in E.S.G. conversations,” he wrote. “But it is misguided to draw such stark lines between these categories. For example, climate change is already having a disproportionate impact on low-income communities around the world — is that an E or an S issue?”

Many of BlackRock’s rivals suggest that Mr. Fink’s letters are simply good marketing, meant to insulate the firm from greater scrutiny. They may have that effect. But far more profoundly, Mr. Fink’s letters have consistently helped change the topic of conversation in corporate boardrooms.

ImageImageLarry Fink of BlackRock is throwing his firm’s weight behind more ambitious climate change goals.Credit…Damon Winter/The New York Times

Larry Fink’s letter has landed

The BlackRock chief’s annual letter to C.E.O.s is going out this morning and Andrew has a copy, which he writes about in his latest column. Mr. Fink’s letter has driven the conversation inside corporate America’s boardrooms for years — such as his proclamation that companies must have a purpose beyond profit, which preceded the Business Roundtable’s statement on stakeholder capitalism, and his call for corporate climate disclosures, which was followed by a raft of climate pledges by companies.

Now, he’s pushing out the goal posts on climate action, asking companies to “disclose a plan for how their business model will be compatible with a net-zero economy.” He defines this as limiting global warming to 2 degrees Celsius above pre-industrial averages and eliminating net greenhouse gas emissions by 2050.

With nearly $9 trillion of investments, BlackRock has a lot of influence. Last year, the firm voted against 69 companies and against 64 directors for climate-related reasons, and it put 191 companies “on watch.”

BlackRock is planning to create “a temperature alignment metric for our public equity and bond funds, where sufficient data is available,” and Mr. Fink added that the firm would start new products “with explicit temperature alignment goals, including products aligned to a net-zero pathway.”

This could have the same effect for investors as a calorie count on a menu for diners, a nudge toward making more informed choices. In the future, big public pension funds and other investors could have firms like BlackRock create custom indexes for them based on such data.

Critics say that Mr. Fink isn’t moving fast enough and still owns $85 billion of assets tied to coal. But much of that investment is in passive index funds that it can’t divest; the firm said it was working behind the scenes with coal companies to encourage them to adopt cleaner technologies.

What about investment performance? Mr. Fink said that sustainability-oriented funds outperformed market benchmarks last year, especially during the worst of the pandemic downturn. “The more your firms are seen to embrace the climate transition and the opportunities it brings,” he wrote to C.E.O.s, “the more the market will reward your firms with higher valuations.”

Image

HERE’S WHAT’S HAPPENING

Janet Yellen is confirmed as Treasury secretary. The Senate approved President Biden’s nominee in an 84-15 vote, making her the first woman to hold the position (when she became Fed chair, she was the first woman in that role, too).

European leaders take center stage at the World Economic Forum. Panels at the virtual summit today will discuss stakeholder capitalism, climate change and a post-pandemic world. Featured speakers include Ursula von der Leyen, the president of the European Commission; Chancellor Angela Merkel of Germany; and President Emmanuel Macron of France.

New York City’s biggest pension funds will divest fossil fuel stocks. Two funds voted to divest an estimated $4 billion in energy stocks from their portfolios, while a third is expected to approve a similar move soon.

Moderna and Pfizer-BioNTech rush to protect against new Covid-19 strains. The drug manufacturers said they were studying ways to alter their coronavirus vaccines after news that the treatments were less effective against a new variant found in South Africa. In other Covid-19 news, Merck withdrew its vaccine candidates after disappointing trials.

Silicon Valley donors’ new focus: recalling California’s governor. Top executives like Doug Leone of Sequoia have given thousands of dollars to a once quixotic campaign to unseat Gov. Gavin Newsom, amid dissatisfaction over his handling of the pandemic and tax policies. Another frequent critic, the financier Chamath Palihapitiya, just announced that he is running for governor.

Image

Epstein ties cost Leon Black his C.E.O. job

Leon Black, the billionaire co-founder of Apollo Global Management, said yesterday that he would retire as chief executive by July 31. The announcement follows an internal investigation into The Times’s revelation that he had paid the convicted sex offender Jeffrey Epstein millions in consulting fees.

Business & Economy

Latest Updates

Updated Jan. 26, 2021, 5:53 a.m. ETEurope’s huge spending to keep businesses alive risks could cause economic growth to stagnate.Catch up: Leon Black will step down as C.E.O. of Apollo after an inquiry found he paid $150 million to Jeffrey Epstein.Mike Lindell, MyPillow C.E.O. and a Trump conspiracy advocate, is barred from Twitter.

Mr. Black gave tens of millions more to Mr. Epstein than previously known. The company’s investigation into the two men’s relationship, conducted by the law firm Dechert at Apollo’s request, found that Mr. Black had paid Mr. Epstein $158 million from 2012 to 2017 for tax advice, double what The Times’s previous report had found. Mr. Black also lent Mr. Epstein, who died by suicide in jail in 2019, over $30 million. The report asserted that there was no evidence Mr. Black took part in any of Mr. Epstein’s criminal activities.

What Mr. Epstein did for Mr. Black: The biggest project, according to the Dechert report, was helping Mr. Black with so-called GRATs, trusts that let families pass wealth to future generations without paying any estate taxes. (The Times has previously explained how the Trump family also made use of the tactic.) Over all, Mr. Black reckoned that Mr. Epstein’s work saved perhaps $2 billion in taxes.

The relationship created a rift between Mr. Black and a longtime partner. Josh Harris, another of Apollo’s founders, argued that the ties to Mr. Epstein showed “poor judgment,” and he tried unsuccessfully to convince fellow board members that Mr. Black should step down immediately, citing the risk of reputational damage to Apollo, Matt Goldstein and Katie Rosman of The Times report.

It’s unclear how much will change. Apollo’s new C.E.O. is Marc Rowan, the firm’s third co-founder, who built Apollo’s $300 billion insurance business but had largely stepped away last year. Mr. Black is staying on as Apollo’s chairman and will keep his seat on the firm’s three-member executive committee.

Apollo announced moves that could dilute Mr. Black’s power, including adding four independent directors to its board and eliminating the firm’s super-voting stock, giving each investor one vote apiece.

“Too many people have fought too hard in too many places for freedom of speech to be suppressed by this awful woke orthodoxy.”

— Rupert Murdoch, whose media empire includes Fox News, in a speech accepting a lifetime achievement award.

Exclusive: Billion-dollar golf carts

Ingersoll Rand has tapped Goldman Sachs to run a sale of its Club Car golf cart unit in a deal that could fetch more than $1.5 billion, DealBook has learned. It’s already begun to talk to corporate buyers about a potential deal. Representatives for Ingersoll Rand and Goldman declined to comment.

A focus on industrial equipment. The private equity firm KKR is a large shareholder in Ingersoll Rand, an industrial giant with a market cap of about $18 billion that specializes in compressors, pumps and power tools. It has owned Club Car since 1995, when it acquired the business through a $1.3 billion deal for its parent company, Clark Equipment. Ingersoll Rand is now exploring a sale of Club Car to focus on its core industrial businesses.

“Personal utility vehicles.” Georgia-based Club Car produced the first golf cart with a steering wheel in the 1960s. Its carts, which sell at $7,000 to $25,000, can be decked out with features like Bluetooth speakers and GPS technology to measure the distance to the pin on a golf course. The golf cart industry, worth $1.2 billion annually, is expected to grow at an average of less than 2 percent over the next few years, according to Ibis World, with cart makers looking for new markets, like gated communities and campus security.

‘The law is frozen’

Ben Cohen — of Ben & Jerry’s ice cream fame — is fired up about a judicial doctrine called qualified immunity, which shields police officers from liability for wrongdoing with few exceptions. “It’s a clear example of injustice and contributes to a lack of trust in police,” Mr. Cohen told DealBook. “In any other organization, everybody is accountable for their actions.”

Qualified immunity was created by judges. It’s not written in a statute but developed in Supreme Court precedent, starting in 1967, ostensibly to balance between police accountability and protection. The doctrine severely limits victims’ ability to hold officers accountable for even extreme misconduct. Since the killing of George Floyd raised public attention to police brutality, a coalition of business leaders, artists, athletes, activists and advocacy groups have joined a movement called the Campaign to End Qualified Immunity. Today, they are launching a 100-day awareness effort aimed at pressuring lawmakers to end the legal protection. “The law is frozen,” Mr. Cohen said.

It’s a rare issue that puts progressives and conservatives on the same page. Mr. Cohen — who is planning to release a book about immunity with the rapper and activist Killer Mike — said he was pleasantly surprised by the diverse alliances around the issue, uniting groups like the libertarian Cato Institute and the liberal American Civil Liberties Union. Last year, Representative Ayanna Pressley, Democrat of Massachusetts, joined with Justin Amash, then a Republican-turned-Independent congressman from Michigan, on a bill to eliminate qualified immunity. It didn’t survive.

“With momentum and support for ending this unjust doctrine evident nationwide, we must meet the moment and show the political courage to get it done,” Ms. Pressley said in a statement to DealBook.

Image

THE SPEED READ

Deals

Qualtrics, a survey software provider, is seeking a valuation of up to $15 billion in its I.P.O., nearly double what SAP paid for the company two years ago. (Reuters)

The owner of the Boston Red Sox has reportedly called off talks to sell a stake to a SPAC founded by the financier Gerry Cardinale and the former Oakland A’s general manager Billy Beane. (Axios)

Politics and policy

The Treasury Department resumed efforts to put Harriet Tubman on the $20 bill, reviving an initiative that President Donald Trump had halted. (NYT)

Republican operatives are reportedly considering pushing company executives to give money to political candidates personally to make up for a potential drop in corporate funds. (CNBC)

Tech

A growing number of companies are finding ways to use blockchains to avoid relying on a central authority, making them harder to shut down. (NYT)

The most prominent unionization drive among Amazon workers will take place next month in Alabama, a state not known for union-friendly laws. (NYT)

Best of the rest

Instead of airing ads during the Super Bowl this year, Budweiser will help fund public-service ads promoting Covid-19 vaccines. (NYT)

The C.E.O. of a casino company who jumped the line for a Covid-19 vaccine has resigned. (Bloomberg)

The World Economic Forum isn’t being held in Davos this year — and skiers and locals are grateful. (WSJ)

Image

We’d like your feedback! Please email thoughts and suggestions to [email protected]