The New Reality: Do Good to Do Well
"The public expectations of your company have never been greater." - Laurence D. Fink, CEO of BlackRock
Public demand for Corporate Social Responsibility (CSR) has made headlines in the past, but never has it come from the world's largest investor. Laurence D. Fink is the founder and chief executive of BlackRock; the heavyweight investment firm that manages $6 trillion in assets and wields major influence over corporate America. On January 16, Mr. Fink sent his annual letter to the worlds most powerful CEO's, but surprised many readers with his considerable emphasis on social impact and accountability.
Titling the letter, "A Sense of Purpose," Mr. Fink dives right in with his expectations for change, "Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society." Mr. Fink continues, "Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders."
So, What's The Big Deal? When BlackRock says its going to start holding companies accountable for something specific, CEOs pay close attention. BlackRock holds a fiduciary responsibility to its investors. Therefore, BlackRock must act in the best interest of its clients, i.e. the shareholders/owners of the major public companies with whom they choose to engage. If BlackRock's clients want to see a greater social impact from companies and BlackRock recognizes this demand as a viable source of continued growth, then it is bound to take action. Mr. Fink states in his letter, "Globally, investors’ increasing use of index funds is driving a transformation in BlackRock’s fiduciary responsibility and the wider landscape of corporate governance. In the $1.7 trillion in active funds we manage, BlackRock can choose to sell the securities of a company if we are doubtful about its strategic direction or long-term growth."
Think about it: BlackRock is giving us reason to believe CSR could not only be profitable, but now necessary. For example, General Electric (GE) has been taking some serious blows these days: from inadequate insurance reserves to a SEC investigation. Even with GE's struggling Power business putting strain on performance, the company continues to invest in its ever-growing CSR program.
In 2005, GE was perceived as one of the world's worst polluters; rightfully so with the Environmental Protection Agency providing plenty of evidence of GE's massive (and toxic) missteps. In an effort to turn its reputation around and eradicate harmful energy, GE launched a CSR initiative called, Ecomagination. The program was designed to deliver clean technology solutions that would provide positive economic and environmental impacts. Not only did Ecomagination successfully change the face of GE, it served as the brand's sole source of growth during the 2007-2008 economic crisis. Twelve years later, GE has invested a total of $20 billion in cleaner technology solutions, resulting in $270 billion in revenues. The powerful CSR program continues to grow with GE committing another $5 billion to Ecomagination solutions by 2020. We would be remiss to think a world leader in energy and Fortune 500 company implemented such a valuable CSR program and didn't catch Mr. Fink's attention.
[Triple] Bottom Line: Despite the many CSR success stories to date, not everyone has been receptive of Mr. Fink's message. Whether the corporate world agrees with BlackRock's stance on CSR or not, a call to action has been made on a major platform, from a major player.
If CSR now holds the fate of your company, you need to ask yourself, "Am I GOOD enough?"
Article Published: January 30, 2018