Future-Proof Finance and Larry Fink's Letter (w free signed PDF of his letter)
In a world where brevity is valued, we could summarize Fink's letter this way: contribute to society or else.
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We might call Larry Fink's letter a Declaration of Interdependence. Or a new Bill of (Corporate) Rights--and Responsibilities. Some have called it just a voice in the wilderness or a mere barking of a distant dog in the capital market neighborhood. After all, the U.S. is in the midst of 109 months of a bullish market with the Dow Jones topping 26,000 (see Figure below).
So what's all the fuss about contributing to society?
Things are good, right? Corporations contribute products, services, jobs, tax revenues and returns for active and passive investors alike. They contribute an awful lot already (shout out to Milton Friedman).
And yet the experts suggest Larry Fink's letter is like the voice in your GPS that says, "In 500 feet, take a left hand turn." Fink's letter follows years of work, unnoticed by the general public, by asset owners, asset managers, investment banks, stock exchanges, and regulatory agencies (see Figure below "The rise of interest..."). This work has been reconciling finance and growth with both the biophysical limits of the planet and the human health and human rights limits of communities.
Image credit: Schroder's asset management
If you study the chart above, you will see that Larry Fink's letter is the GPS to guide companies on a journey that has already begun. In other words, the $76.3 trillion dollar stock market (The Street, 2017) and $100 trillion bond market (Bloomberg, 2016) are slowly shifting to embrace a more accurate understanding of the underlying value of the market: namely, that at the final analysis, all this "value" relies on healthy companies which rely on good people (to work well and consume responsibly) and a good planet (to provide resources, metabolize wastes, delight our imaginations, etc). See also: UN Principles for Responsible Investment
"Business cannot succeed in a society that fails."
-Former WBCSD president Bjorn Stigson
The Letter Heard Around the World: Print, Post and Use it in Class, at Your Next Staff Meeting or Family Meal
I read it over the weekend and some poignant excerpts are below. The full letter, signed by Larry Fink himself is being made available to you below. (I just printed it off their website...but hey, saves you a few steps) However, the letter would make interesting reading in a finance or accounting course, sustainable business class or workshop or conference.
Excerpts:
"We are seeing a paradox of high returns and high anxiety."
"Since the financial crisis, those with capital have reaped enormous benefits. At the same time, many individuals across the world are facing a combination of low rates, low wage growth, and inadequate retirement systems."
"I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors."
"Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth."
"To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."
Go to TripleBottomLion Download page to get Free PDF of Larry Fink's Letter (no gimmicks...I am not asking for your email or credit card or favorite Netflix series or who you like in the Super Bowl or anything)
What do you think of Fink's letter? I would love to hear your thoughts (especially if you think I am full of baloney...)
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