Chairman and Chief Executive Officer, BlackRock
“When companies are transparent about their sustainability efforts, investors and customers can understand what the company is doing and why. Without such understanding, companies won’t get credit for what they are doing well or for improvements they make, and investors won’t be able to direct their capital appropriately.”
How we do plan for the future? As an investor with a strong fiduciary duty to our clients, it is something we at BlackRock ask ourselves constantly. Most of the assets we manage are intended to help support people in their retirements – retirements that are often 20 or 30 years in the future and may last another 20 or 30 years beyond that.
That’s why the issue of financial sustainability is at the center of our thinking. How do we find companies to invest in that will deliver sustainable growth, not just for several quarters, but for many years? How do we help clients, whether they are corporations or individuals, identify strategies that will deliver the returns to meet obligations that may stretch decades into the future? How do we ensure our own strategy as a firm is sustainable, so we can continue to deliver on our commitments to our clients, our people and our own shareholders for years to come?
While businesses must navigate many near-term challenges, those that keep an eye on the future are typically better able to weather the challenges that come along – from unexpected storms like the financial crisis to ongoing challenges like climate change. That’s because they’ve made the investments that foster long-term, sustainable growth, instead of looking for an easy short-term payout.
It concerns us as a long-term investor that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies, often by favoring buybacks or dividend increases over making investments in their future growth. We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns.
We do recognize the balance that must be achieved to drive near-term performance while simultaneously making those investments that will sustain growth – in innovation and product enhancement, capital and plant equipment, employee development and internal controls and technology.
Financial sustainability also demands that companies be mindful of their social and environmental impact. Companies affect and are affected by any number of social and environmental trends – increased longevity, pollution and climate change, natural resource depletion and changing consumer attitudes, to name a few. By monitoring their own impact (and that of others), companies are better able to assess both risks and opportunities, giving their shareholders, customers and employees a distinct advantage.
When companies are transparent about their sustainability efforts, investors and customers can understand what the company is doing and why. Without such understanding, companies won’t get credit for what they are doing well or for improvements they make, and investors won’t be able to direct their capital appropriately. The quality of a company’s leadership has a profound impact on (and relationship to) the way it approaches issues of sustainability. When investing on behalf of clients, we evaluate how environmental, social and governance factors impact financial performance. And those assessments depend, in part, on a company’s transparency.
We also work with clients to match their expectations for investment returns with the development and sustainability priorities of communities around the world. For example, we recently helped a client with the world’s largest “green” bond project to date: a $1 billion offering with a major European insurance group. The project is a “win-win” that provides the company with attractive returns while strengthening the market for these types of “green” securities. The transparency, liquidity and impact reporting of green bonds contribute to the creation of a robust and credible market, and the bonds themselves support projects that improve local communities worldwide.
At BlackRock, we know that the financial sustainability of our own company is closely intertwined with environmental and social issues. While we do not have a particularly large direct impact from our own operations, due to the nature of our business, we are nonetheless conscious of doing our part. When BlackRock needed to build a new data center – something that obviously takes an enormous amount of energy to run – we decided to locate it in upstate New York so that we could access hydropower in the area. This not only limited the environmental impact, it also made economic sense. We pay 3 cents per kilowatt hour (kWh) in that location; just a few hours away, in New York City, we pay 22 cents per kWh, and in Germany, for example, we would pay 46 cents per kWh.
Perhaps the greatest challenge to financial sustainability for our society today, however, is the one posed by the effects of longevity. The blessing of longer lives has created financial obligations that many institutions and individuals are simply not prepared to meet. People need to understand the longer arcs of their lives and rethink how they plan to support themselves through their entire lives, including through retirements that might be much longer than they anticipated. It’s a complex challenge that workers and their employers, as well as policy makers, all have an urgent need to address.
Ultimately, we believe that the question of financial sustainability comes down to a shared responsibility – the responsibility of businesses, governments and individuals to take a long-term view, be aware of how the world is changing and help prepare for that future.
© 2014 Ford Motor Company