Special Edition: It's time for the letter
Today, Larry Fink released his annual letter to CEO's and Clients, and the message could not be clearer
During the financial crisis, Larry Fink, CEO of BlackRock, began sending an annual letter to the clients of BlackRock, the largest asset manager worldwide with managed assets amounting to 7.43 trillion dollars by the end of 2019. So, when BlackRock speaks, investors listen.
This year, however, having experienced a year of pandemic and economic contraction not seen since the great depression, the message seems especially momentous. The letter while important to the clients of BlackRock also is of importance to those of us who manage the assets that BlackRock and investors like BlackRock invest in. Investments like real estate. In fact, since 2018 BlackRock has accelerated its investments in the built environment.
In his 2020 letter to BlackRock clients, Larry Fink called out the importance of sustainability as a new standard in investing. This especially applied to the way BlackRock saw risk and underscored climate change as a risk to its investments. The goal was to identify and mitigate that risk, building a more resilient portfolio that could weather the shocks and stresses of the asset’s location. I have written more than once that real estate is local, once again those words ring true.
The 2020 letter however could not have foreseen the devastation of the Covid-19 Pandemic. As the world began to shelter in place and brace itself for the coming storm, an interesting thing happened. Instead of taking a backseat to the pandemic, investing in sustainable assets increased, 96% over 2019. As outlined in his 2021 message, the shift accelerated and with it increased transparency, better data, and more advanced technology.
This same upward shift was observed in the 2020 GRESB results as well, with a 22% increase over 2019. The annual survey of real estate assets increased to 1,229 portfolios, covering 96,000 assets in 64 countries and represented 4.8 trillion in asset value.
As the Biden Administration re-enters the Paris Climate Agreement, and cities begin to shift their focus from merely reporting of data to actually reducing the consumption of energy and water, this trend is likely to only accelerate, and as Fink calls out in his letter, the implications to the global economy will be dramatic.
This year Fink highlighted a theme that has been increasingly becoming vocal across the built environment, that merely managing your financials is not enough. Transparency while important, is not enough. Scientists almost universally agree that global emissions must be reduced. You do not reduce emissions by doing the same thing you have been doing and you certainly cannot reduce emissions if your not even tracking what you are doing. This year Fink points out the opportunity to transition to a net-zero economy, and the potential positive impact this will have for companies proactive enough to move towards this type of operation. With investors listening intently, they are hearing loud and clear - your assets should be reducing their impact, if they are not, then they are part of the problem and a liability. Those assets able to demonstrate that they are part of the solution will attract investment, as these assets are more likely to rise in value compared to their outdated competitors.
The theme of transparency is not lost in the message, in fact, it is a critical part of his message. It is just that transparency without action is no longer enough. This year Fink specifically called out the importance of the Task Force on Climate-related Financial Disclosures (TCFD) as well as other standards such as the Sustainability Accounting Standards Board (SASB). This highlights the importance of disclosing to investors the material climate-related risks of the assets within their portfolio. To understand this risk, it means assets need to evaluate the potential shocks and stressors that may impact each asset. Each asset needs to understand its susceptibility to geophysical events such as flooding, wildfires, and hurricanes, but also human events such as terrorism and crime. Shocks and stressors include biological events such as diseases as well as technological events such as grid failure or toxic spills. There are no doubt actuaries already hard at work calculating the impact and adjusting insurance rates based on your property’s preparedness, or lack of preparedness.
Fink wraps up his letter with BlackRock’s commitment to move towards Net Zero, setting 2050 as the goal, forecasting this strategy will keep their clients at the forefront of this global transition. This commitment to sustainability in the opinion of Fink will drive better returns for their investors, and the ripple will impact other asset management firms as well.
You can read Larry Fink’s letter to Client’s here, and his letter to CEO’s here.
There is no misinterpreting the clear message that is being relayed.
You can be part of the solution, by helping reduce the impact of your property on the built environment and expand that impact by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry reduce energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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