Black Rock CEO Larry Fink’s annual letter to CEOs is always closely scrutinised. As the head of the world’s largest institutional investor, he identifies the issues companies must prioritise to generate long-term value. Three key lessons emerge from Fink’s focus on ESG
Black Rock CEO Larry Fink’s annual letter to CEOs is always closely scrutinised. As the head of the world’s largest institutional investor, he identifies the issues companies must prioritise to generate long-term value. After a year of intense disruption that sent shockwaves through society and the global economy, exposing humanity’s fragility and resilience in equal measure, the 2021 letter emphasises the connection between purpose and performance. It highlights that, far from diverting attention from the threat of climate change and social justice issues, the pandemic has demonstrated the symbiotic relationship between people, society, and the planet, underlining the urgent imperative for organisations to address ESG challenges if they are to thrive in the post-COVID-19 world. Three key lessons emerge from Fink’s focus on ESG:
The relationship between strong ESG performance and conventional measures of success became clear as the pandemic gathered pace. Fink notes that: ‘During 2020, 81% of a globally representative selection of sustainable indexes outperformed their parent benchmarks’.
Companies that act purposefully to meet stakeholder needs, establishing strong connections and relationships based on trust, are better placed to respond when crisis strikes. They are more resilient and attract talented employees and loyal customers who share their principles.
As custodians of organisational purpose and values, boards must build stakeholder trust by setting a consistent tone from the top. Governance professionals must ensure that director effectiveness in defining and promoting organisational purpose is factored into board performance evaluations.
As governments worldwide commit to achieving net-zero emissions by 2050, companies must have a clear strategy and roadmap to decarbonise operations. Investors and wider stakeholders need to know the commitments the organisation will make and its strategy to achieve them.
Boards must understand their organisation’s sustainability risk exposure and its environmental impacts across operations, products, services, and the supply chain, ensuring the company’s business model is compatible with a net-zero economy.
Governance professionals should focus on equipping the board with the information and expertise needed to deliver meaningful oversight of plans and targets. Empowering directors with the data they need to oversee this effectively is integral to this.
For organisations to make progress on ESG targets, they must be able to monitor them. This requires the collection, analysis and reporting of large volumes of data. As support for disclosure in alignment with the World Economic Forum ESG metrics grows, organisations must ensure they can supply the data required. Rather than waiting for sustainability reporting regulations to be imposed, companies should start benchmarking now and make voluntary performance disclosure central to their ethos.
To achieve this, governance professionals need to shift tact and operationalise ESG practices. This means implementing sufficiently comprehensive data collection processes and reporting infrastructure to allow the board timely access to accurate and relevant ESG metrics.
Learn more about Diligent’s ESG solution.
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