In his recent annual letter to CEOs, BlackRock CEO Larry Fink makes the stunning claim that climate change has brought us to “the edge of a fundamental reshaping of finance.” BlackRock has committed to “place sustainability at the centre of [its] investment approach.”
This is a warning from the world’s largest shareholder that public companies dare not ignore. It also brings together three corporate roles that have rarely been in the same room: finance, investor relations and sustainability.
If Fink is correct in predicting that capital will increasingly be allocated to those companies with the most sustainable business models, then investors will need new sources of data to understand and anticipate the economic significance of sustainability strategies. Companies will need to communicate very differently with their investors. Disclosing their performance on the most material social issues (determined by the Sustainability Accounting Standards Board), as Fink recommends, is a necessary step.
But the more fundamental question is whether a given business is positioned to thrive in a world transformed by climate change and financed by investors who care about social impact. And if that message is to be heard by the capital markets, it will have to come through financial statements, quarterly earnings calls and investor briefings, not sustainability reports.
What is needed is a new language — or at least a new way of bridging social impact and economic performance. Companies must begin to report on the shared value they create, a new kind of double-entry accounting system. Alternatively, my colleague George Serafeim has proposed the development of “impact-weighted accounts,” a line item on financial statements that reflects the company’s impact on all stakeholders, the environment and the broader society.
This future is not far away, and BlackRock’s financial heft will accelerate its arrival. The need for a new language that bridges sustainability and finance is now.
Mark R. Kramer is a co-founder and a managing director of FSG, a global social-impact consulting firm