The recommendation that public corporations disclose their plans for achieving carbon neutrality by 2050, as suggested in BlackRock CEO Larry Fink’s recent letter and by others, should be embraced by companies and investors as well as pragmatically implemented by regulators globally.
We, a long-term investor and an experienced market regulator, welcome this disclosure framework for what it will do — greatly improve the mix of decision-useful information — and what it will not do — direct corporate strategy or, worse, pick winners and losers. And, based on the work that we have done with FCLT Global and others, we believe it can be implemented rapidly and effectively.
Starting with the widely accepted proposition that environmental regulation will drive economic activity toward carbon neutrality over the next thirty or so years, this recommendation provides a focal point for meaningful investor-company engagement.
Past transformations demonstrate the wisdom of this approach. Think of a key investing question that had its genesis in the 1990s: How will your company handle the transformation to a digital economy?
For the past thirty years, investors have used that forward-looking information to evaluate companies as well to assess broader shifts in economic activity. Also note that the answers to this digital transformation question have changed dramatically from year-to-year in response to the dynamics of the marketplace, including innovation, globalization and human capital development.