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One of the most influential investment letters of 2022

28 January 2022 / Published in Your Money
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BlackRock, the world's largest investment manager, is ASB's investment partner. As a fiduciary investor, the money BlackRock manages isn't its own, it belongs to its clients that trust it to invest their funds, which now totals over US$10 trillion dollars, as at 31 December 2021. 

BlackRock takes this responsibility seriously. It acts as a fiduciary: investing in its customer's interests, rather than its own. As part of this responsibility, every January BlackRock's CEO, Larry Fink, writes to companies BlackRock is invested in and to leaders across the globe on behalf of its clients. He summarises his investors' concerns, explains what they expect from the business as an investor, and asks for a response from the world's business leaders.

So, what is the focus of the world's largest investor in 2022? And what will the impact be on you and your investments? 

The BlackRock letter touched on many issues - here's our take on its main themes.

A reminder of BlackRock investors' long-term focus

BlackRock's funds are mostly made of long-term retirement savings. They aren't looking for short-term investment wins, but sustainable, long-term growth.

That means BlackRock wants business leaders to look beyond annual results and make sure they're positioning their organisation for long-term success.

This is one of the values our investment team shares with BlackRock. We too focus on the medium to long-term returns of our investments and encourage our customers not to be distracted by the inevitable ups and downs of their funds day-to-day.  

The crucial importance of a clear purpose

Uncertainty has been the one certainty for the past two years. Larry points out that having a clear purpose is the best way for a business to succeed in this environment. A business with a purpose can rally its employees, investors, customers and community. Its purpose is a source of strength in the face of adversity, so it can overcome short-term issues and thus continue to deliver value in the long term. 

A purpose is not a focus on profit. It's the reason employees get out of bed in the morning. For example, at ASB our purpose is very simple: accelerate the financial wellbeing of every New Zealander

The rise of "stakeholder capitalism"

Larry asks business leaders to move their focus from profit to the prosperity of all their stakeholders: customers, employees, the community and their shareholders.

Iris Davila, BlackRock Australia's Head of Investment Stewardship, states "When Larry (Fink) started writing these letters 10 years ago, it was really trying to focus a company to think about those long-term sustainable business practices that would benefit clients”1 - BlackRock is focused on promoting long-term sustainable value on behalf of clients and, in order to do that, she believes companies need to think about various stakeholders they're committed to. 

This comes back to a long-term, sustainable focus. After all, exploiting customers and employees is just as limiting to a business in the long-term as exploiting limited resources.

A new world of work in the wake of COVID-19

One of the most important stakeholder groups is a business' employees. The seismic impact of COVID-19 has created serious risks for every business around the engagement and retention of their people.

The challenges of remote working, and the waves of resignations and career changes have showed business leaders they can no longer take their people for granted. Ensuring engagement with the business and its purpose is essential for success. 

Again, a strong sense of purpose is critical for keeping people, as is ensuring they share in their employer's prosperity. It's an important reminder for ASB customers who own or manage businesses.

The increase in capital availability for disruptive start-ups

Large businesses used to be seen as safe investments because the cost of entry for competitors was seen as simply too high.

But now, there is a huge amount of capital available to disruptive start-ups, across every industry. Look at Tesla, which now has a greater market capitalisation than Ford and General Motors combined. 

Larry makes the point that large existing businesses must keep innovating and adapting. The alternative is to be left behind, both by disruptive competitors redefining their market, and by investors who are looking toward the future rather than the past . ASB's funds are diversified to ensure customers benefit from being invested in both emerging and established public companies, which Larry talks to in his letter.

Achieving sustainability through capitalism

A common theme in every BlackRock letter since 2018 has been the importance of sustainability and decarbonisation. 

Larry doesn't see this as an environmental issue owned by governments and imposed as a cost on businesses. Instead, he sees it as the biggest, most exciting investment opportunity of the coming decade. Companies that discover lower-cost ways to decarbonise industries will be huge winners, and the race is on around the world. 

Again, this ties in strongly to the demands of his clients, and the inevitable outcome of a long-term focus. After all, there's no profitability without a viable planet.

While BlackRock is not actively divesting from gas or oil as a policy, Larry does point out that these fossil-fuel industries need to become phoenixes. They need to transform themselves through other energy technologies before they become fossils themselves.

Investor action is a big driver of sustainability. The rise of options like the ASB Positive Impact Fund make it easier for sustainable businesses to raise capital, and move funds away from polluters and high carbon creators. It's a sure way of driving permanent change. 

Increasing shareholder involvement on Environmental, Social and Governance issues

Owning shares in a business gives the investor the right to vote at shareholder meetings. 

In the past, shareholder votes have been seen as a bit of a nuisance, and sometimes get forgotten about.

Larry has urged businesses to harness that power instead, and give shareholders an active voice in environmental, social and governance (ESG) issues.

By doing so, investors can have a say in the business they own, and ensure it's meeting wider goals as well as creating the returns they want to see. 

At the same time, BlackRock wants to learn more about how a company's relationship with stakeholders impacts its long-term value. So they're now starting a centre for Stakeholder Capitalism to test its impact on returns. It's clear BlackRock will use the findings as another indicator when choosing its investments.

Our dual relationship with BlackRock

BlackRock is our investment partner, helping us to meet our customers' investment objectives. 

But they're also the largest institutional shareholder of our parent company, the Commonwealth Bank of Australia.2

We're pleased to see that we share many of the same beliefs and values when it comes to the future, and that as a business we're already well on the paths Larry has identified as being crucial for future success. 

Some recent examples include:

  • Our own business is now carbon neutral. 
  • We've helped farmers reduce their carbon levels and improve their sustainability since 2013 with our low-interest Rural Sustainability Loan.
  • We've continued to support our community partnerships and sponsorships throughout the pandemic  : donating $200k towards two major incident welfare vehicles for St John, after the Super Saturday Covid-19 vaccination drive; helping Kiwis through our local community fund; and our work with KidsCan to provide essential items to kids in need.
  • We've developed extensive online resources, tools and internal training to help our vulnerable customers:
  • We offer a Positive Impact Fund for our investors, as a way to use their investment funds to make a positive difference in the world.

Keen to know how these themes impact your investment? For more insights on what they could mean for your own investment planning, talk to an ASB specialist (call 0800 272 019),  or listen to the latest episode of the ASB Investment Podcast featuring Ben Powell (APAC Chief Investment Strategist) and Iris Davila (BlackRock Australia's Head of Investment Stewardship).  

If you're wanting to read Larry Fink's 2022 Letter to CEOs, the full letter can be found here

*BlackRock Investment Management (Australia) Limited (BlackRock) is a wholly-owned subsidiary of BlackRock, Inc. BlackRock, Inc is based in the US and is a leading global provider of investment management services with over US$10 trillion in assets under management as at 31 December 2021.

1ASB Investor Insights video: https://www.asb.co.nz/investment-advice/asb-kiwisaver-investor-hub.html 
2https://money.cnn.com/quote/shareholders/shareholders.html?symb=CMWAY&subView=institutional

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