Blackrock, the largest money manager in the world with $9 trillion in assets, doubled down last week on its climate message from a year ago. Larry Fink’s 2021 letter to CEOs predicts a “tectonic shift” toward sustainability:
“We believe the climate transition presents a historic investment opportunity. There is no company whose business model won’t be profoundly affected by the transition to a net zero economy – one that emits no more carbon dioxide than it removes from the atmosphere by 2050, the scientifically-established threshold necessary to keep global warming well below 2ºC. Net zero demands a transformation of the entire economy. Human-produced emissions need to decline by 8-10% annually between 2020 and 2050.”
In 2020, the number of the world’s largest companies adopting net-zero emission targets tripled to 1,500. This change was driven in most part by large global institutional investors such as mutual funds, ETF managers, public and corporate pension plans, sovereign wealth funds, foundations and endowments. Investors like these have the clout to force issues through by voting at annual meetings to replace boards with directors who will implement their agendas and take the steps necessary to achieve them. When they band together, they can often control enough votes to enforce their will. For example, ExxonMobil is now threatened with a proxy contest to replace a slate of its board members by the California State Teachers’ Pension Plan and by DE Shaw, one of the largest hedge fund firms in the world.
The largest investor engagement initiative - Climate Action 100+ - grew to 545 investors with $52 trillion in assets under management (the market cap of the S&P 500 is $31 trillion). It is calling on the world’s largest emitters to become net-zero businesses. BlackRock joined in January 2020, and State Street Global Advisors, the third largest global asset manager, joined in November 2020. Moreover, these investors are not content with vague promises about a goal 30 years away; they are demanding specific science-based targets with mathematically driven achievements in the near and medium term and with consistent robust public disclosure showing progress, plans and processes.
What does this mean in the real world? Mastercard recently announced that it now runs all of its servers on renewable energy and that it is looking to cut emissions associated with business travel and commuting by its employees. Mastercard also insists that it will be working with hundreds of its service providers to do the same. General Motors announced last week that its entire vehicle product line will be either electric or will run on hydrogen by 2035. This dramatic announcement rocked the auto world, surprising even GM’s biggest rivals.
CAPM 2.0 seeks to understand how these changes will impact business and the economy going forward. We’ve written about companies that produce renewable power and storage, build electric and hydrogen vehicles, and make efficient buildings. The best of these will be in strong demand as the clean energy economy takes hold. We’ll see many companies shooting for net zero by converting their vehicle fleets to electric, buying or producing renewable power and storage to run operations, cutting fuel used by employees for commuting and air travel and persuading their vendors and partners to do the same.
