The world’s largest asset manager stressed that sustainability issues will continue to be fundamental to companies’ long-term economic outlook.

By Paul A. Davies, Michael D. Green, and James Bee

On 17 January 2022, Larry Fink, the founder and chief executive of BlackRock, published his annual Letter to CEOs (the Letter), titled “The Power of Capitalism”. The Letter focuses on the importance of sustainability issues to companies from a financial perspective, and seeks to highlight the economic benefits of stakeholder capitalism.

Fink’s 2020 and 2021 Letters to CEOs also drew attention to sustainability issues, noting that climate change had “become a defining factor in companies’ long-term prospects”. Given BlackRock’s status as the world’s largest asset manager by assets under management, such public statements have been and will continue to be noted by leaders of public companies throughout the US and globally.

This blog post examines key focus areas of the Letter.

Environmental

This Lexis practice note discusses market trends in 2021 relating to disclosures of climate change risks and mitigation by public companies, which are intertwined with ESG issues. It also provides illustrative disclosures by public companies regarding how climate change has affected or may affect their operations, both directly (e.g., through disruption of supply chains)…

United States - New York City

The fashion industry often faces scrutiny from stakeholders to improve due diligence in supply chains.  A landmark proposed bill in New York, drafted last October and presented for the first time to a legislative committee on January 5 2022, is seeking to drive accountability and transparency in the supply chains of fashion companies. The Fashion Sustainability and Social Accountability Act (the “Act“) historic in its scope and nature, would require fashion retail sellers and manufacturers to disclose their environmental and social impacts, and to set out targets to reduce those impacts.

White House

On the heels of the November 2021 Tribal Nations Summit, a flurry of memoranda was signed by the White House and many government agencies. These memoranda seek to further the Biden administration’s promises of consulting with indigenous people and acknowledging their communities’ cultures, customs, sacred sites, and historical knowledge in the contexts of environmental planning, sustainability, and justice, and in ongoing and forthcoming federal decision making and regulatory rulemaking. Center stage in the ongoing discussion is Indigenous Traditional Ecological Knowledge (ITEK), and the need for including and consulting with Tribal communities on the front end of planning as part of the environmental review process under the National Environmental Policy Act (NEPA). Stakeholders from developers and investors to Tribes and regulators, among other parties, should expect increased focus and guidance from the Biden administration in 2022 on these issues.

Universal Blog NYC

On January 12, 2022, the Bureau of Ocean Energy Management (“BOEM”) issued its Final Sale Notice for the auction of six offshore wind lease areas in federal waters off the coasts of New York and New Jersey (the “NY Bight FSN”), totaling more than 480,000 acres and up to 7 gigawatts (“GW”) of capacity. This…

On January 11, 2022, the U.S. Environmental Protection Agency (EPA) announced that, effective immediately, the Agency’s review of applications for new pesticide active ingredients (AI) pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) will uniformly incorporate analysis under the Endangered Species Act (ESA) with the intention of prioritizing protection for listed species as much as possible. The new policy applies to AI applications already submitted for consideration as well as incoming applications, and it does not immediately implicate any pending litigation regarding established AIs. Under the new policy, before registering any new conventional AI, the agency will evaluate the potential effects of the AI on federally listed threatened or endangered species and their designated critical habitats, and initiate ESA consultation with the U.S. Fish and Wildlife Service and the National Marine Fisheries Services (the Services) as appropriate.

China - Hong Kong

In December 2021, the Hong Kong Monetary Authority (HKMA) issued the results of its pilot climate risk stress test (CRST).  The CRST assesses the potential impact of climate change on the Hong Kong banking sector.  It marks the latest such publication by a regulator on the topic, with French regulator, Autorité de contrôle prudentiel et de résolution (ACPR), having published the results of its climate risk stress test in Q2 2021 and a number of other countries’ regulators undertaking similar analyses during 2022.

The CRST indicates that the Hong Kong banking sector should remain resilient to climate-related shocks given the Banks’ strong capital buffers. However, it was noted that simplified assumptions and use of historical data in modelling could mean the potential impact could be more serious than predicted.

The exercise identified various climate-related vulnerabilities for Banks to seek to address and highlighted gaps in terms of insufficient granular, reliable data, as well as a lack of widely-accepted standards for classifying and identifying climate risk exposures.  HKMA notes that addressing these issues will require concerted efforts of the industry.

In this Blog Post, we set out a high level summary of the CRST in terms of the scope of the CRST, pertinent findings and actions required to enhance climate risk management going forward.