BlackRock’s Larry Fink recently sent his annual Letter to CEOs. The themes it addresses mirrored our recent write-up on the 5 ESG themes for 2022 that were identified with our ESG Safeguard platform. We took the lessons from the annual letter and coupled them with real-time developments in the ESG space to illustrate how quickly these ideas are evolving.
Last week, Larry Fink, head of BlackRock, sent out his annual Letter to CEOs. The impact was felt on our ESG Safeguard platform with BlackRock receiving high marks this week and generating buzz on a variety of outlets. The lessons we can take from this year’s edition of the Letter to CEOs are coupled with real-time developments in the ESG space that illustrate how quickly these ideas are evolving.
Early in his letter to CEOs, Larry Fink discusses Human Capital and the future of work. This is also one of Amenity’s 5 Themes to look out for in 2022. From stories we covered in recent months on labor, it is apparent that companies need to adapt to keep employees satisfied and productive as competing offers are always around the corner.
This week, Bank of America (BAC) expanded $1B in equity offerings to all employees, underscoring the importance some companies are putting on retaining talent. The offerings are quite substantial and apply to all employees. Ranging from 65 to 600 shares based on level of compensation, employees stand to gain anywhere from $2,900 to $27,000 in shares. The additional shares must undergo a four-year vesting period, but this is a significant step up from the $750 cash bonuses Bank of America paid out to lower-level employees last year. As the banking industry often makes similar moves, it will be interesting to see if this is a tactic that is utilized by others in the industry.
Equity for compensation has long been a tactic used in startups, but employee ownership could become more standardized. Employee ownership creates greater buy-in, tying individual productivity to the larger value of the firm and highlights the relationship to the individual employee. This is just one example of how companies can further their relationships with employees, but it is a powerful one and had a visible impact this week.
Increased investment for climate technology was another prominent action item in Larry Fink’s letter. Fink expounds that the next unicorn companies will be climate technology focused and that smart capital will be betting on these types of companies to attain solutions on issues like energy, waste reduction, and smart manufacturing. This is not a new idea for us at Amenity, but it is reassuring to hear it coming from such a respected member of the ESG finance community.
This week, General Motors (GM) laid the next brick in the foundation of its electric vehicle (EV) roadmap. The company had stated in the past that it would invest $35B over the next 10 years to make the transition to electric vehicles. This week, the company announced a $7B investment in four factories in the US. Furthermore the company said it will be hiring 8,000 new team members to its technical staff to further development.
GM also placed emphasis on the battery supply chain and has partnered with LG Chemical (051910:KR). LG Chem. announced they would invest $2.1B into a battery factory. LG accounts for 20% of global EV battery production and produces for other well-known brands in the space. Securing a supply chain has become a key component in EV strategy because of concerns around procurement and production. Production is just one piece of the puzzle as the metals, like Lithium and Cobalt, used in batteries can be hard to find and the areas where they are found can be prone to corruption and labor violations.
LG Energy Solutions, the subsidiary of LG Chem. that is involved directly with the battery production, is going public this week and will be the largest IPO ever in South Korea. This lends credence to the Larry Fink notion that climate technology not only is good for the world, but also draws capital.
As we move forward in 2022, it is becoming increasingly clear that our 5 ESG Themes and the ideas Larry Fink laid out in his Letter to CEOs paint a picture of where the markets are headed. It is simply an adapt or die situation where companies are seeing the writing on the wall.
When it comes to transportation, companies have no choice but to incorporate EVs in their larger strategy. When it comes to employees, companies are realizing that their employees are more empowered than ever before to seek new opportunities if they are not fulfilled by their current role. Investors are engaging in new ways with companies on a variety of issues as well, and Larry Fink is a proponent of dialogue rather than outright divestment from carbon intensive industries. Companies are beginning to walk the walk on ESG issues by putting money towards what matters, as we saw this week from Bank of America, General Motors, and LG Chemical.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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