Last Wednesday, the Council on Foreign Relations invited me to do a live interview with Larry Fink as part of their 2-day virtual symposium, “Investing in a Sustainable Future.” What a privilege. I’ve admired Larry for a long time, and I’ve always considered him to be a visionary thinker and an inspiring business leader.
As I wrote several weeks ago, I was particularly impressed with Larry’s most recent letter to CEOs and thought it was a clear shot across the bow for companies to get in line with net-zero climate goals. Regular readers of The Instigator know that I favor bold strategies because they make business sense and they’re also what we need. The clock has run out on incremental action. I was curious to probe Larry’s views further—to understand what he sees as the opportunities and limitations of private sector engagement in environmental problem-solving.
I don’t want to try and recap Larry’s words; if you’re curious, have a listen here.
Instead, let me note what I took away from our conversation, some of which was already on my mind, and some of which is a new direction or emphasis for me.
When it comes to environmental goals, we can’t let private companies off the hook. If we’re only leaning on public companies to meet environmental standards, we’re forming a big loophole. In that case, we should expect controversial activities not to be replaced or disappear but to simply migrate from public companies over to private ones where they will be free from scrutiny. In fact, it’s probably happening right now. Carbon-intensive companies are selling assets to private players.
But this is highly problematic because it looks like a win, thereby pacifying stakeholders when we should be riled up. It masks the fact that no progress is actually being made and takes the pressure off. So private companies need to step up, and private equity firms should lead the charge. Limited partners investing in private equity (pension funds et al) should push hard for this to happen now.
Environmental justice must be a priority. This is a common theme in my newsletters. It’s essential that we bring together diverse voices into a broad coalition as we pursue environmental solutions. And even more important, we must understand the disparate impacts of our proposals. All too often, the increased costs associated with the environmental initiatives are borne by those least in a position to do so. We can do better. Let's start by prioritizing lowest cost strategies.
Finance is an accelerant. The attention of the financial community is real and will drive action sooner rather than later. After all, finance is all about making projections for the future and discounting them back to today. (See net present value.) Once a financier has assessed the risks and opportunities, put together a good forecast, and run the numbers, there’s no reason to delay acting on NPV positive opportunities. I expect that this approach will accelerate climate-addressing initiatives. There is no good reason to delay.
We need much-improved disclosure. Speaking of finance, as soon as the financial community gets involved, they’ll want to evaluate company behavior, make comparisons, and learn from good and bad examples. To do this, we need to know with crystal clarity who is doing exactly what on a comparable basis. That means comparing apples to apples.
Remember, the whole notion of standardized public company reporting dates back to the Great Depression, when it turned out there were many fraudulent companies, but no good way to know this until it was too late. The solution was a commitment to financial disclosure as a universal requirement. We now need a similar agreement for things like net-zero goals and ESG metrics. It’s the only way to make sure good companies get credit for their commitments and bad companies don’t get credit for what they are not doing. Even the SEC is now talking about climate and ESG disclosures. Leading companies therefore should strongly support developing methodologies that are underway such as SASB and TCFD.
The market is rewarding companies making real climate progress. As Larry observed in his letter, dollars are going to flow to those companies doing this right and they will move away from those that are not. And it’s not just dollars but employees and customers too. So it’s in businesses’ interest to get on the right side of things. Now.
We need to play the long game. Larry reminded me that his investors are mostly pension funds, so the constituency he cares most about cares about the long-term. That’s positive, and it aligns with environmental needs. These are problems that won’t be solved overnight. We need the wiser perspective that goes with longer timelines.
It’s time for ESG+. Sure, we want to credit companies for scoring high on the ESG checklist, but we also want them to go beyond mere compliance. It’s the floor, not the ceiling. Larry talks about companies with “purpose.” I strongly agree. We need companies who are determined to make outsized, long-term gains for society in a way that makes sense for their own businesses’ bottom line. Do something important -- i.e., that is “material” to use corporate lawyer parlance -- to demonstrate your purpose and your alignment with long-term stakeholders.
I am grateful to CFR, and to Larry, for engaging with me on these important issues. It always stretches my thinking.
Did you read Larry’s letter to CEOs? What do you think is the future of corporate-led environmental problem-solving?
The Index
Thank you Brown University and Ricardo Bayan for interviewing me to get my take on what private-sector leadership and financial innovation can do to accelerate and scale environmental progress. Please check it out, and let me know what you think.
Mainstream venture capitalists increasingly see not just the downside but also the enormous business opportunity presented by the climate challenge. One of these players is mighty Union Square Ventures. It’s good that they are on the case. Here’s USV’s Albert Wenger’s recent blog on mitigating the climate crisis.
But we know that business leadership and market-based solutions can't do everything. Here’s a good overview by Columbia’s Jason Bordoff on why “the time for green industrial policy is now.”
One More Thing
My very good friend (who is also my coach) Marshall Goldsmith has good advice here for everyone: “Make peace and change your life.”
Onward,
Great read, as always. Thanks Mark.
Great points including the one about inclusion of private companies. It would be great to see Cargill and Koch Industries step up as leaders.