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Key Insights From BlackRock's Annual Letter to CEOs

WSP USA climate leaders explain why justice, equity, diversity and inclusion should take greater prominence in long-term business strategies addressing resilience.

Key Insights From BlackRock's Annual Letter to CEOs

WSP USA climate leaders explain why justice, equity, diversity and inclusion should take greater prominence in long-term business strategies addressing resilience.

Published 03-18-21

Submitted by WSP

The first few months of 2021 have been active with climate announcements by the White House, corporations and investors.

During his first week in office, President Biden signed an executive order rejoining the Paris Agreement and pledging to action on climate change by creating jobs, building infrastructure and delivering environmental justice. U.S. Rep. Barbara Boxer introduced a bill (HR 260) to address the disproportionate impact of climate change on women and support the efforts of women globally to combat climate change.

Later that month, BlackRock chief executive Larry Fink created buzz with his 2021 Letter to CEOs. As leader of the world’s largest asset management company, overseeing $7 trillion worth of investments, Fink has the power to make news and frame issues for corporations and Wall Street through his annual letters to the CEOs of companies that BlackRock invests in.

Fink’s 2020 letter challenged CEOs on whether their long-term business strategies considered the effects of climate change on their companies’ resilience. “The risks that climate change poses to the world of finance can no longer be ignored,” Fink wrote.

Justice, Equity, Diversity and Inclusion

His 2021 letter builds on last year’s message, highlighting climate change, capital management, long-term strategy and purpose. What stands out this year is Fink relegates justice, equity, diversity and inclusion (JEDI) primarily to the final few paragraphs.

Climate change, capital management, long-term strategy and purpose are inextricably linked, but they must have equity and justice at their center. However, Fink does not position equity and justice as central to the frameworks and standards in his letter. Likewise, many organizations are failing to do so, as they struggle to embed equity and justice into the fabric of their operations and practices. And still other organizations have ignored equity and justice as central principles entirely.

So, then, how can organizations authentically address systemic injustices? Where can we look for effective and equitable actions to address these systemic issues?”

At WSP USA, our Sustainability, Energy and Climate Change (SECC) team works at the forefront of these issues as a partner to organizations. From our perspective, which is born out of our work with clients, Fink should use his bully pulpit to sharply focus on identifying, acknowledging and addressing social injustices. In corporate speak, this means strengthening the “S” in ESG (Environmental, Social and Corporate Governance). 

The climate crisis is, by far, the greatest threat to humankind. However, without addressing the systemic racism and socioeconomic inequalities still prevalent in our society, we will not be able to equitably address climate change.

The ESG standards and approaches that Fink promotes — aligning greenhouse gas (GHG) reduction targets with science, the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) — are necessary pieces to the puzzle. But they will not solve societal injustices, which, if left unmet, will undermine progress against climate change.

The Pandemic Inequity Reveal

COVID-19 has painfully exposed the vast disparities between people and systems in society. Although we all are caught in the storm of a global pandemic together, we are not all in the same boat.

Frontline workers do not have the option to do their jobs from home. And many of them are mothers. Institutions such as schools, daycare centers, churches, and government agencies that support working mothers the most are closed or operating at reduced capacity. This is taking a toll on the women who hold up our communities, economy, and our wellbeing, having forced many of them to leave the workforce to care for their children. 

The pandemic compounds the chronic stress on many Americans facing systemic racism and climate change. This dangerous cocktail of pressures should compel organizations to rethink their long-term strategies related to social issues, so that intersectionality is put into practice to advance social justice.

The American Society of Adaptation Professionals’ (ASAP’s) JEDI Committee put forth a statement in April 2020 condemning the racial and social injustices raging our nation. Within this statement, the committee noted several JEDI principles that could help begin transformational change.

WSP believes these principles could be helpful to organizations who are looking for a pathway to embed JEDI into their long-term strategy:

  • Deconstruct barriers in a company’s governance structure, workforce recruitment processes, and value chain engagement model to become more inclusive and accessible.
  • Prioritize the development of products and services that support all frontline communities based on their lived experience and traditional knowledge and ensure that these products and services are accessible to all communities.
  • Commit to leveraging a company’s influence, network and resources to promote JEDI across its industry and the policies and regulations upon which they need to comply.

ESG Reporting Standard Consistency

Fink’s 2020 letter called on companies to significantly improve climate-related disclosures in line with industry-specific guidelines from SASB and to disclose climate-related risks in line with the TCFD recommendations. He reiterates this call in 2021 but acknowledges a challenge that many companies face: navigating a sea of reporting frameworks and standards.

Most noteworthy is Fink’s support for “moving to a single global standard, which will enable investors to make more informed decisions about how to achieve durable long-term returns.” The letter frames the benefits of a consolidated reporting standard primarily from the perspective of investors, but an equally noteworthy benefit will accrue to organization sustainability programs and, ultimately, the climate.

When organizations can spend less time navigating varied reporting systems and standards, they can spend more time and resources implementing their climate action agendas. It will also hopefully free up time and resources to further integrate JEDI principles into GHG reductions and other sustainability initiatives.

While multiple reporting options remain open to organizations, this consolidation process is already in motion on multiple fronts.

In September 2020, five of the most significant international framework- and standard-setting institutions — CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and SASB — published a shared vision of the elements necessary for more comprehensive corporate reporting and a joint statement of intent to drive toward this goal.

In October, the International Financial Reporting Standards Foundation (IFRS) released a consultation paper to assess demand for global sustainability reporting standards and to determine the foundation’s role in the development of such standards. In response, the International Organization of Securities Commissions announced its support for the establishment of a Sustainability Standards Board under IFRS.

Finally, in December, the framework- and standard-setting institutions consortium published a white paper illustrating how their current frameworks, standards and platforms, along with the TCFD recommendations, can be used together in the progression toward global standards focused on sustainability’s impact on enterprise value.

These actions can be viewed as signaled support and the white paper demonstrates that standard-setting for sustainability-related financial disclosure is a natural extension of the current role of IFRS.

As organizations navigate the sustainability and ESG reporting landscape in 2021, much remains unchanged, but standardization and consolidation appear to be on the horizon.

Aiming for Net Zero

In addition to reiterating the desire for continued disclosure in line with SASB and TCFD, Fink’s 2021 letter goes a step further by asking companies to disclose a plan for how business models will be compatible with a net zero economy. Specifically, BlackRock calls for companies to disclose how this plan is incorporated into long-term strategies and reviewed by boards of directors. The first challenge for CEOs putting this call into action is determining exactly what “net zero” means.

Fink’s letter adds that a net zero economy is “one where global warming is limited to well below 2 degrees Celsius, consistent with a global aspiration of net zero greenhouse gas emissions by 2050.” But this explanation belies significant nuance and potential for confusion for corporate target-setting. This confusion can be clarified through three questions:

1. What is the “net” in “net zero”?

The “net” in “net zero” is often glossed over, but the implication is that absolute GHG emissions will not reach zero. Rather, gross emissions will be counterbalanced resulting in a net value of zero. “Carbon neutrality” has been defined in different ways in corporate goal setting, but it has most often meant that carbon offset credits are used to avoid a quantity of GHG emissions equivalent to the organization’s remaining emissions in a reporting year.

But this definition is incompatible with the IPCC’s definition of net zero: “anthropogenic emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals over a specified period.” This is because many carbon offsets are issued based on the emissions avoided as a result of the project funded by the credit purchase, such as a new renewable energy project that reduces the need for higher-carbon generation options. These offsets are an important source of green financing, but the emissions from the purchaser’s activity continue to accumulate in the atmosphere.

To reach “net zero” as defined by the IPCC, avoidance offsets are insufficient and carbon removals — either from within the value chain boundary or purchased as credits — must be included. Standards are emerging, but carbon removal credits would certify that an equivalent quantity of CO2 has been removed from the atmosphere and sequestered for a specific amount of time, either through nature-based solutions such as restorative agriculture, or technology-based solutions such as direct air capture.

2. What emissions are included?

In corporate GHG goal setting, terms such as “net zero”, “carbon neutral” and “climate neutral” have often been used interchangeably. Such variety has given rise to targets with drastically different levels of ambition and compatibility.

For example, “carbon neutral” could be interpreted as only covering carbon dioxide emissions and excluding other GHGs. An even bigger source of variation is the operational boundary of targets. While it seems there is a new corporate “net zero” target announcement each week, some only include Scope 1 and 2 emissions, while others add specific Scope 3 emissions categories (e.g., employee business travel) or, in some cases, full value chain emissions, across Scope 1, 2 and 3 emissions.

3. What path should be taken to “net zero”?

The emphasized timeline for “net zero” targets in Fink’s letter and elsewhere is often by 2050. While this is implied from the science underpinning the Paris Agreement, achieving the stated goal of holding global average temperatures well below 2 degrees Celsius (and the aspirational goal of 1.5 degrees Celsius) depends more on the pathway followed to net zero than the destination itself.

Reaching net zero does not solve the problem, it simply prevents it from getting worse. This is due to the rapidly depleting global carbon budget. If global emissions do not begin to decline 8-10 percent annually in the next few years, the carbon budget for 1.5 degrees Celsius and well below 2 degrees Celsius will be exhausted long before 2050.

SBTi Provides Clarity

Greater clarity and consistent guidance are needed on these questions as organizations rush to align their ambition with net zero.

Fortunately, the Science-based Targets initiative (SBTi) is developing the first global standard for net-zero business. SBTi’s public consultation on its Net-Zero Standard Criteria Draft runs through March 10. When it comes to removal offsets, inclusion of Scope 3 and the ambition of reduction pathways, the question is not “whether”, but “how much”.

Some of the most impactful questions SBTi sought corporate feedback on include:

  • Quality standards for carbon removals, including demonstration of permanence;
  • The level of exclusions allowed in the scope 3 abatement target boundary; and
  • Whether required abatement pathways should align with well below 2 degrees Celsius or 1.5 degrees Celsius.

Since SBTi may align net-zero criteria with its general science-based target criteria, the answers to these questions will affect not only organizations who plan to set net-zero targets but potentially organizations planning to set or refresh any level of science-based target. SBTi plans to release its final Net-Zero Standard at COP26 in early November.

As your organization navigates the calls to action in Larry Fink’s letter and aims to further integrate the principles of JEDI, the WSP SECC team can help. To get started, visit our website or contact our team at

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