Investment giant BlackRock put public companies on notice yesterday that they need to positively impact society in order to remain in the asset manager’s good graces. This message signals a much-needed normative shift – if BlackRock makes good on its promise.
This post was co-written by Mara Bolis, Senior Advisor for the Private Sector Department at Oxfam America.
On January 16th, Larry Fink, the CEO of asset management giant BlackRock, sent a letter to CEOs of US publicly-traded companies calling for businesses to demonstrate a positive impact on society – lest they lose support from BlackRock. Given the firm’s clout – it’s the largest asset manager in the world, with an astounding $5.7 trillion in assets under management that are invested on behalf of actors like corporate pensions, sovereign wealth funds, and the public – companies that do not comply with this directive may face intense fallout. Should BlackRock really follow through with policing and punishing companies that perform poorly on social indicators, and if other investors fall in line, we could be witnessing a watershed moment in defining the role of the private sector in addressing social and environmental change. Smaller socially responsible investment shops, progressive pension plans, and faith-based investors have long called for better corporate behavior toward vulnerable populations. But BlackRock, a mainstream investor through and through that, aside from supporting a shareholder proposal to require Exxon Mobil to enhance climate disclosures, has shied away from activism, has an opportunity to seriously move the needle here – if they follow through.
The letter cites a number of social issues – widespread popular discontent, inadequate retirement systems, low wage growth, automation – as symptoms of an economy that, especially since the financial crisis, has been serving the owners of capital at everyone else’s expense. To correct these harrowing trends and create sustainable, long-term growth, BlackRock is calling on companies to proactively manage environmental, social, and governance matters through deeper board and investor engagement and thoughtful strategy development. Companies, BlackRock demands, should act as stewards of all their stakeholders – including employees, customers, and communities.
In doing so, BlackRock brings new credence to concerns that Oxfam has raised in the past. Oxfam’s work on fighting corruption in overseas oil and gas transactions, corporate tax practices, and labor abuses in the food and beverage sector demonstrate the real and tragic outcomes that poor corporate behavior has on people living in poverty. BlackRock, in its letter, links poor corporate behavior to substandard corporate governance – a material issue that investors cannot afford to ignore.
At Oxfam, we are encouraged by the language in this letter, which in large part aligns with our own analysis of the factors that underlie inequality and how financial markets incentivize these outcomes. Oxfam’s emerging body of work that examines how investments influence poverty and inequality finds that many of the social, environmental, and economic ills facing the world today were born of the financial sector’s old market dynamics. The primacy of shareholder value as a business philosophy (which mainstream investment groups have had no small part in promoting) has created a disproportionate focus on short-term profit maximization at the expense of other stakeholders like workers and suppliers. This model discourages decisions that would create holistic, long-term value, like paying living wages to employees. Even recently, Wall Street analysts downgraded the Chipotle stock price for paying its workers what the analysts deemed to be too much. Investors’ historically limitless growth expectations on business link directly to inequality.
Yesterday’s investments shaped today’s world; today’s investments will shape the world of tomorrow. Oxfam has known this, and we’re happy to see a large and mainstream investment group signal an intent to change course. Now comes the hard work of holding companies to account.