BlackRock C.E.O. Larry Fink on ESG Investing

please welcome Andrew Ross Sorkin and his guest the chairman and CEO of BlackRock Larry Fink [Applause] Larry Fink is here and of course oversees what is now I want to say about almost about eight trillion dollars give or take there was a period which was about 10 trillion dollars I want to thank you for being here because you've been on this stage now um a whole bunch of times right we appreciate spending time with you um in large part because I would argue that you have been a real Pioneer on a lot of these issues that we talk about ESG and the like and that's why I wanted to have you here especially this year because there has been as you know so very well a backlash about ESG and the like and what it means what capitalism is about and all of that and I want to get to that and I want us to have sort of a a a bit of a rager of a conversation if we could about it but but I want to start because we had the treasury secretary here earlier just to get your sense uh also because you've been right more times than not about where you think we actually are in the economy right now well I hope you invited me because you like me too though I did not just uh hi everyone um I I think there's you know many great things going on in the world and the economy obviously it's been um it's being hidden in the narrative and obviously the reality of really elevated inflation markets that are down 18 in equities down pretty close to 18 in bonds the appreciation of the dollar so there's a whole reset in the marketplace and um and the reality the US is feeling much less pain than other parts of the world because of the dollar appreciation um and and other issues but but um I actually believe inflation will be abating very rapidly will evade rapidly yeah I mean is it going to go back down to two percent which is their objective that's going to be hard and that's going to be the fundamental issue where where is an acceptable level of inflation I mean in my 40-something years of being in markets you would have dreamed for three or four percent inflation so we set this target now of two percent which can be debated why too and I've had conversations on that um my biggest worry is not that we're not going to see a falling of inflation back to three or four percent my biggest worry is the world is losing hope we are we have seen a collapse in in birth rates and demographics we're actually going to enter a period of more what I would call malaise uh we are all seeing um the transformation of China going from what I would have called a very economic-minded economy to more ideological economy we're seeing the attended effects on that and we're seeing a Chinese economy flowing down to a three we have the European economy that is really fundamentally changed right now related to the Russian gas and the cost of energy and the fiscal support by governments and so I believe after we get out of this real spike in inflation we're going to be waking up to a world that's going to be a two-ish three percent world with maybe three or four percent inflation and I think that's going to be the fundamental issue that we're going to be facing and because of the situation that we saw just six eight weeks ago in the UK there is a limit on how much fiscal stimulus governments can can rationally do without having the marketplace Rebel that's what happened in the UK so after we get out of this burst of inflation it is my fear that we are not going to have the ability for any fiscal stimulus for any time soon you know deficits do matter and at the same time the central banks are going to take years in which they're going to have to unwind all their quantitative easing all their bond purchases that they did over the last 10 years and aggressively in the last few years they're not going to be as fully equipped to re-stimulate the economy so we believe we're going to have rates fundamentally higher you know maybe where they are today they're not going to go down at the same time we're just not going to have an economy that is based on a real growth that we we are customers what does that mean for everybody here who has a 401k or or or or money in the stock market I would say for long-term investors this is a great Paradigm because but if the other side of it is is some kind of malaise yeah but Andrew if you look at what it took to over 50 of our assets are retirement assets and all I do is focus on how do we get to a long-term outcome and all my letters are based on that long-term ideal um it is actually easier to meet your long-term liability which everybody assumes about a seven or eight percent return over 20 30 years you're going to have a nice pool of money it is actually safer to invest to get that return today because you have two years trading at a four and a quarter you have you have 10-year credit you could buy you know at a five six percent return I actually believe we're going to go from the this paper interest in growth stocks we're going to have this hyper interested earning coupon hyper interest in investing secretary Yellen talked about the IRA which we are very bullish on and what that impact will do those types of subsidies that are coming from the government to invest in decarbonization it's going to produce 12 13 14 returns very easily we've done Investments like that already and so I think it is actually to be easy to meet your investment targets today than it was a year ago to reach meet your investment targets years ago a couple years ago you needed to invest heavily in private Equity you had a short liquidity to get to the return and now you're able to more safely invest in other things that providing you a coupon to get to your return so despite all the Doom and Gloom there is more opportunities to invest in the markets today than it was a year ago we talked to the treasury secretary about crypto and as you know very well we're going to talk later to sandbankment Freed or so we think BlackRock had an investment in FTX 24 million dollars in a fund of funds 24 million dollars yeah it was it was in a situa it was not in the core part of our business okay so what do you what do you think happened there and and then I want to talk about the diligence piece of it because part of what's Happening Here is there's a lot of people questioning all of these fancy firms that everybody looked at Sequoia you others a lot of people invested in this company and it appears that nobody was minding the store well I think people reminding the stories the question is you know I'm not we're gonna have to wait and see and how this all plays out I mean right now we can make all the Judgment calls that it looks like there were some misbehaviors of major consequences uh uh you know I am I assume look at by the long if you look at the Sequoias of the world they've had unbelievable returns over a long period of time I am sure they did the due diligence could they have been misled could they have done other things could we have been misled in this small little Investments we did sure but until we have more facts I'm not going to speculate is it fair though to think about Venture capitalists as self-regulators if you will of these types of companies and the reason and look there's you know you can look at theranos and you can look at all sorts of companies and I don't we don't know what this situation is uh in front of us right now but it seems to me that in the Venture world the whole business model is actually not the due diligence the entire business model is you know out of 50 Investments 40 are going to fail and we know that in advance so the cost of actually diligencing this all out to Perfection may not even be necessary because what we're really doing is hoping that we hit just a couple of of grand slam home runs and that's just fine and that worked it probably is not going to work in the future because I don't believe we need another food delivery company I don't believe we need where some of all this money was going to go I actually believe we're more and more Venture Capital money is going to be going and more and more early investment is going to be fundamentally in decarbonization it's going to be a different science it's going to require really underwriting the science behind these entrepreneurs I'm visiting young entrepreneurs who are trying to do whether it's sequestration or a better way of of improving or improving farming by encoding seeds that already have the ability to create their own fertilizer to reduce fertilizer there are some amazing technologies that are being developed today so I actually believe we're going to be seeing a transformation of how where this money is going to go it's not going to go to all this stuff that maybe provided us good utility to get food quicker or find a taxi sooner but I actually believe it's going to be much more in hard science and it's going to require a lot more technical understanding has this changed your view of crypto at all you have you now have a deal with coinbase uh and and yet you were always sort of also I think a bit of a skeptic of all this oh I actually believe most of the companies are not going to be around I still believe that I do believe because because they're now real they're frauds they're what well I mean let's think about FTX I mean you could look back now FTX created its failure was it's creating its own token it was not a defy it wasn't it wasn't a you know a ledger that was open to the world it was a concerned right it was not distributed so the whole Foundation of what crypto is it's supposed to be distributed Ledger that is across the system I actually believe this technology is going to be very important I am I you know look at it we have been part of the huge revolution in investing through ETFs we believe that ETS will be changing the whole way we invest many people still use it as a means well people are investing it for indexing no they're the majority of people were putting money in an index in an ETFs or active investors that are buying exposure the entire bond market is being transformed as we talk right now I believe the Next Generation for markets the Next Generation for Securities will be will be tokenization of securities um we will and if we could have that distributed Ledger that we know every beneficial owner every beneficial seller we all have our our code of who's buying who's selling instantaneous settlement and think about it changes the whole ecosystem you don't need Trust Banks but does that disrupt you eventually because you are custodian all this we don't know we're not a custodian we're not we don't we use third-party custodians in everything we do in everything you do we don't we're not a custodian bank so you're so your goal in that by the way I don't think that he was technically like custodian either which is a separate issue I think they were I don't know if there was a real custodian in that closed Ledger but that's a whole other story uh you should ask them that question um uh no I I mean the transformation think about instantaneous settlement bonds and stocks um no middlemen we're going to bring down fees even more dramatically uh as for me I don't have to vote on any shares anymore because the beneficial owner will do all the voting they'll have it and that's where I want to go with this conversation I knew I was going to take you there thank you so I you have been writing letters and I've been writing about those letters you have uh for what now I think is going on uh more than a Dozen Years and you have written some provocative letters about what the purpose of a business is the social mission of the businesses and the idea of ESG and I would say for the last couple of years it was actually quite a popular thing Business Roundtable took took on a lot of the Mantra of what you were talking about and the like we saw a lot of investment in cleantech and everything else and then the pandemic happened and then this year happened and when I say this year I'm thinking about the war with Russia I'm talking price of energy prices of energy and all of a sudden the conversation switched and changed but uh and there are now uh a lot of Republicans around the country who are very unhappy with you um treasuries of of different states I I actually think some Democrats were happy with me too I think it's I I think there's some balance there there's there's some symmetry so but but tell it but there is a there has been a a rebuke if you will to what some people call woke capitalism what do you say to that as I wrote in my last letter um I I believe stakeholder capitalism is not political it is not woke it is capitalism more than ever before especially during the pandemic if you were not focusing your employees and the and the issues around your employees you are not doing your job um U.S president zielinski about Ukraine about Taiwan and try to you use the foundation that uh and maybe even ask secretary Yellen the same question um 1200 to 1700 companies left Ukraine they didn't leave Ukraine because there were sanctions they didn't leave Ukraine because the CEO woke up and said gosh I'm going to take up an impairment charge um they left Ukraine because their employees their clients said this is the right thing to do it's not like they wanted to take an impairment strike to me that is stakeholder capitalism you were responding to the needs of your stakeholders and you're doing it for the beneficial interests of your shareholders let's be clear the shareholders are the primary stakeholder but to achieve the long-term interests of your shareholders and that's what I'm focused on not any short-term thing but the long-term things to create that durable profitability you have to be focused on all your stakeholders your clients but here's the question but I want to get to one really important point on this I mean so yes you're right there's a lot of noise and it really does fill the airwaves and so you know fills up the time in the Airways about the attacks from some states to me specifically uh and to The Firm in the first three quarters we raised uh about 88 billion dollars of net new money in the U.S more than any other public firm most public asset managers have had outflows this year over the last year Rolling years we've had 258 billion of net inflow so you know the the reality is the majority the unheard unspoken majority really like what we were doing what we are saying I'm not happy with the narrative because it fills the airwaves and we have to spend a lot of time and let me be clear I am spending a lot more time in Washington States I'm trying to correct the narrative because in most cases The Narrative is not based on facts it's based on based on somebody else's view of the facts but let me ask you this you have talked about climate change being sort of the central issue of our time and the and the need to confront it and I think it was a view that you planned and had influence to vote shares on behalf of of of of of of customers to do that interestingly your most recent letter of the this year seems to take a little bit of a step back on that it if you you know you probably dissected my letters part of the day but I don't think there's been any changes at all we've almost talked first of all we're writing things that we think about are really being impactful for the long term unfortunately the long term is not something that is topical today and let's be clear populism is not about long-termism populism is about the moment and let me be clear one of the greatest reasons why we have inflation is because of populism we are doing things for the short term we're trying and so many of things I mean I could go on on the whole short-termism of populism what we've done and created this inflation but um you know I've always spoken about the need for hydrocarbons I actually believe we're gonna we're gonna need hydrocarbons for 70 years okay but the key and this is what we're really focusing on the key is how do we see question and how do we capture carbon how do we reduce what we are using and doing and how do we but now you're getting it on both sides because I was going to say either red states that are coming after you on one end yeah right and now there are the blue States and I would love for all states to focus on the long term I think we are doing the a great job as a fiduciary to every one of our clients by identifying these long-term issues and I think our flows are showing you that it's still reaching the but you've talked about also trying to get out of actually having that influence so one of the things you're also doing is not is effectively trying to let shareholders vote vote themselves so but what I what where I want to go with this though is yeah the question is whether actually most shareholders don't actually vote and so what does that mean well what we're doing right now we only have the legal ability to go back to the defined benefit plans uh to go back and say would you like to have that vote and over 25 percent of our defined clients that have now moved that they are doing their own vote I hope and I wrote this I truly hope in a letter I wrote six weeks ago on where we are with voting choice I truly hope that they take the responsibility to understand each vote and be a fiduciary to all their school teachers and firemen and all the other people they're they're doing this for I can tell you we've taken a very uh important step on this and if Society wants to bring back the vote to the individuals if we could get some Law changes and bring back the vote to the individual holders and all that and we could we could do that will that lead to some outcomes that maybe not be good maybe I mean if if the people who are taking back their vote whether it's an individual or a corporation or a pension fund they take back their vote and do don't do the necessary research on how to analyze and they rely on the proxy voting organizations we're in trouble and if they take back the vote that and don't vote it's a field day for activists because they have more control of the actual vote it's a field day for foreign investors who do vote and so let's be clear we have taken a responsibility making sure we're doing everything we can for our owners or Capital all the eight plus trillion dollars that we manage and none of it is our money and so we've taken a really important step but if Society wants to bring not having BlackRock have that power we are providing an answer but what do you say to those who say the whole purpose should be to put as much money in the pensioner's pocket as humanly possible many years ago Calpers decided they were getting out of investing in this in cigarettes nicotine and they decide they're getting out of investing in guns yes and then there was a study done interestingly five or eight years later they said that they lost money a remarkable amount of money actually they did do we well not because it was a small part of the index but billions of dollars though maybe and so the question therefore is what what's the answer to that well we have said to everybody do not divest of hydrocarbons and my first flight and second letter third letter we are not because I do not want and this is where we've had I've had attacks from the far left the last thing we want is the is the money to be moved into private hands so when a organization divests it's just going to a private hand it doesn't mean the Net Zero footprint of the world changes and so our belief has always been let's keep it as transparent and public and working together let's work on it in the long term but the outcome of divestiture is not a good outcome but then explain this there was a period of time where I think you had actually pushed Exxon to do some divestitures and some of those investors no no we voted I mean the Exxon Mobil uh vote which was very popular and how that came out uh let's let's talk about the facts for 10 years Exxon Mobil underperformed its peers and since that vote they've outperformed their peers um it was about governance it was not about environmental I could talk to you about this for so very long but I you know but the story is if you look at the results from that vote they've outperformed their peers it's not because they outperformed because the energy Market went up a lot in the last year and a half you just use their comparison of the other energy companies the United States over 10 years and where they have been in the last two years and Exxon Mobil is not finally out before final question I think your letters have had influenced boards in ways that are maybe not even fully appreciated or understood or maybe that is understood and maybe for some reason for some people too too much my question is whether you think it's going to shift whether you feel the shift happening because of the pushback in all sorts of States not just on the issues of energy but voting rights what happened in Calif what happened in Florida with DeSantis and and Disney I mean all of these sort of social issues what happens of a I never wanted my letters to be influential I wanted my letter to be topical so let's start there and every letter was meant to be talking about long-term issues because the narrative the financial narrative every day is about the tick tock of the market about meme stocks about crypto and none of that really matters what matters is of the long-term outcome since most of our money is is retirement I rate these letters of the idea that it's a 20 30 year narrative and how to give people hope and confidence I look at what blackrock's job is is to provide hope because if you don't have hope why on Earth would you invest for 20 30 years outcome okay if you have no hope you're going to keep all your money in a bank account and that's what we're seeing in China right now 45 of off Savings in a isn't isn't a bank account you systematically see it 18 savings rate in in Europe because they don't have the same hope that Americans do I mean one of the most influential reasons why America differentiated itself over the 50 years post World War II now 70 is hope we have had the ability to have more long-term hope if we lose that long-term hope because of the narrative and all that stuff it is going to be harder for the U.S to have differential growth on that note thank you Laura thank you thanks everyone appreciate it thank you everybody

Channel: New York Times Events

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Length: 24min 16sec (1456 seconds)

Published: Thu Dec 01 2022