BlackRock, Inc. (BLK) Earnings Call Transcript & Summary

It's not that easy to answer because, I mean, there are many factors, actually, which are driving your portfolio. But of course, I mean, on the one hand, we always said that negative interest rates is something which is not the nicest thing for us. And hence, an increase in interest rates per se would be something positive. But I really do believe, and I said it for Deutsche Bank, the time to use negative interest as an excuse for your performance is over. You need to manage it differently. We have done it. Others have done it. So we shouldn't come into that discussion. We have our measures in place. We need to price differently. We have done this. And therefore, you can also see the upside. The real issue is, what does it mean for the recovery of the economy? What does it mean also if you talk about the Euroland? What does it mean for the individual countries in Europe? And therefore, it is a very difficult and complex question. And therefore, I said, I'm absolutely sure that central banks around the world, including the ECB, are heavily thinking about this. They are doing this because they know it may be good for the one sector. It may be actually worse for a [ sovereign ]. It may be worse for other sectors. And the balance, hitting the right balance, is actually the magical task, which you need to do. One thing is clear. I think, again, that overall, it's getting more difficult and difficult the longer you have been playing on this. And we have done it in Europe now for years and years and therefore, we always said, forget about the banks. But for the overall economy, in order to manage it long term, it would have been better to exit that negative interest rate policy earlier in order to also have kind of other measures in place. Now we need to think about what would happen if interest rates are raised. Again, yes, it would be good for the banks, but you need to have the whole economy and countries in your view.

Christian, we started out with vaccines and how important it would be have a worldwide vaccination program. We talk about monetary policy, and I think it is absolutely clear that the world needs to cooperate and collaborate here with the international financial institutions. Where do you see us in the state of -- for international financial collaboration? You once said the highest risk is that the world is not collaborating as it did after the last financial crisis, where it really acted in sync, and it acted in sync in the COVID crisis.

Yes, it is. Again, I think the recovery which we have seen is based on this heavy action by the governments, by the central banks, but also the way they have interacted. Now I think we are talking about 2 things. Number one, to really finalize and finish this crisis in a way that vaccination comes across in a global way that we find the right leveling and balancing of fighting a possible and potential inflation. And at the same time, we are not spending too much time about it, financing the massive transformation of the world, which is coming over the next 10 years. And that is something which, in my view, can only be done jointly, globally in this regard. I do think that also, at least the perception I have on the political level with now the new President in the U.S., the communication and the way the interaction runs, we have a real chance in hopefully addressing these global challenges. Jointly, we need this. There is, in my view, no chance that one country on its own can ever, ever address it on its own. In particular, within Europe, we need a further strong and joint Europe. But then we need to work in particular with the U.S. in order to really address the challenges coming from the transformation. And in this regard, to be honest, returning to the Paris Agreement, all the kind of positive noises I hear from the U.S. with regard to climate change, I think we have a chance of working together, addressing it and hopefully, in a way that the world comes first and not each and every individual country.

Thank you for bridging already, Christian, to the ESG topic because now I would like to hand over back to Larry. You've been a front-runner in the ESG. You brought it really with your -- with one of your letters at the beginning of 2020. You really brought it into the mindset of the CEO worldwide. And we have been always proud here in Europe. We are the front-runners. We are doing it really well, and let's use this competitive advantage. What is your view? Is Europe still upfront in the ESG field? Or is there a shifting or shift on -- in balance here?

First, I would answer -- or to say it's not a race. And it's not -- certainly not a competitive race. I mean, no question, society -- and Europe stated that sustainability is a societal risk. In the United States, it took a number of years for society and government to start talking that way. And it was harder in the United States to move forward when government was saying climate risk was not a societal risk. I think globally now, including Asia and China, our conversations -- and this began about 2 years ago, are saying more and more societies are saying climate risk is a societal risk. And I wanted -- and there, once you go over that hurdle, then you have more cooperation. And that's what we're seeing now. And for me, I see a huge movement, very accelerated movement by the Biden administration. I see huge movement by investors now in the United States. I don't think it matters who's first or second on this because this is not a race. We're all trying to improve society, improve the earth's health. And so I would start there. But I would say -- saying it's a societal risk and actually moving to a true net zero, that's the difficulty. Okay, I mean, we can all believe in it, but now getting there -- we're not seeing, what I would say, an aggressive stance by many governments yet. They're talking the talk. Many societies, including Europe, are talking the talk but not walking the talk. We -- because to really get to a net zero, we don't have the science yet. And the great article today about as much as airlines want to move forward on more sustainable, they can't do it yet. Biofuels right now are 50% to 60% more expensive than hydrocarbons. The margins on airlines is so severe. Now basically, if we want to get every airline to use biofuels, I think within a number of years, we could do it. But are we then willing? Getting back to your inflation story and question, maybe it will reduce the cost differential of the green premium. But to do that, are we willing to say to everybody in the world, you're going to be -- your cost of flying is up 30% to offset the cost? Or whatever the differential is on cost. What's that?

Should it be up 30% because it's external costs of environmental damage? Should it be up 30%?

Will the cost of flying or the biofuel costs?

No, the cost for carbon, for flying -- the cost for flying in general.

Look, here's the issue. Yes, could we create a giant carbon tax, is that what you're referring to, that offsets it? The problem is it displaces so many jobs. It displaces -- I don't think, politically, you can do that day one. It displaces jobs. When I write my CEO letters, a transition has to be fair and just. And so if you can tell me we can increase a carbon tax to X, Y without displacing jobs, without having regional inequalities, without having all these other issues, let's do it. It's just not feasible now. Now what is feasible that -- I don't see movement in Europe. If Europe really is about this and if the U.S. is really going to be about this, to name 2 parts of the world, we need to develop a continental power grid, okay? We all know we're going to move to electric cars. We now have solar and wind having no green premium versus any other source of energy today. Now it's intermittent. We have to have storage and all that. But that's a great example of these issues. It took 30 years to bring the cost of solar and wind back down to the same level of other hydrocarbon costs. We need to do that for every industry. So what I'm trying to suggest is -- and this is why I say, transition is an opportunity, but it's an opportunity because we have to be investing more and more. We need to do the R&D. Governments are going to need to do much more R&D in credits on developing new science and technologies. It's not just about the carbon tax. I mean here's my issue in many of the countries of Europe. If they really want to have a true carbon tax, shouldn't all 100% of the revenues from carbon tax go into green? In many countries in Europe, the carbon tax goes to the balance of budget, okay? That's not a good solution. And so what I'm trying to say is it's not so simple here. And my last thing I would like to say, and I'm saying it loudly to every person who will listen to me, if society believes that all public companies need to now report under TCFD, the [ IFR ] standards, whatever standard one wants to use, it can't just ask public companies to do it and not ask for us as a society. Right now, what we are seeing worldwide is a movement by regulators and policymakers of moving very rapidly for disclosure of public companies. You see that in Europe right now. Some countries have mandated it. But there's no conversation about the rest of society. So the burden is if Deutsche Bank and BlackRock tomorrow needed to report under TCFD Scope 3, which all are supply chains, we are then the policemen. We are the organization that is policing the downstreaming. I don't think politically that's going to work. They're going to hate us more than ever, big companies, banks. Because -- isn't it the responsibility of government setting policy, that policy is good for all of society? But right now, all I'm seeing is mostly governments and regulators are asking public companies to move forward. BlackRock is too, by the way, that's -- we don't manage a lot of private money. But the key of getting this done to really getting to net zero and to doing it effectively is asking all of society moving together. And the last thing, if we only ask public companies to disclose and to report, if they don't have the rest of society, we're going to have some very important -- some very important companies that are in hydrocarbons or chemicals to go private. And that's not a solution, that doesn't change the net zero of the world. Two, what we have witnessed in Europe are some of the hydrocarbon companies, what they do, they sell some of the worst and dirtiest of their assets, and that's considered good. We, as a shareholder, like how those companies look now because they have less of a carbon footprint. But the world doesn't change. It just goes from a transparent organization to an opaque organization. That is not going to get us to where we want to go as a society. And so these are the issues we need to ask. And so I'm urging everybody to focus on this in a societal way, not just with public companies. And we need regulators. When you ask Christian about coming together, if we could get one thing done in the G20s, the COP26 is having one taxonomy, which we don't have at the moment, so we could judge companies worldwide in the same way. But two, we come to terms with the idea that we're trying to get all parts of society moving together, not just public companies. Or we're going to have this incredible arbitrage of companies leaving the private -- leaving public -- being in the public domain into the private domain, or we're going to see a lot of the world's assets just going into the private domain and we don't change the world.

Christian -- Larry, thank you, Larry. I mean you touched very important topics here. Effectively, make it very short is, how do we manage this transition. It's not black and white, it's not green or brown. It's how do we get from A to B as quickly as possible. What role for governments to play, what role for banks to play and what role for society?

Well, first of all, it's important that we are really not talking about a race but that we are talking from ambition to impact. We need an impact now and not only the talk, but really impacting. By the way, that was the reason why we declared last week or 2 weeks ago, in our Sustainability Deep Dive, that we don't want to even raise our absolute numbers for the time being. But we moved it forward by 2 years in order to have an impact. Number two, the most important, because when we talk about ESG, of course, climate change is super important and it's a societal task. But we have to do it in a way that the S part is not lost on people's mindset. And that's what I'm always saying. When we talk about the climate change and the transformation, for instance, German corporates have to do, it's our task as a bank to support the transformation, integrate, but not to stop in an abrupt way the relationship with corporates. I think that would be the worst thing to do because you leave something on the table, which is twofold, a, a societal problem in countries like, for instance, Germany or in others. And the real issue, exactly what Larry is saying, is only moved from one country into another because the production will take place but at another part of the world and it's not addressed. And in this regard, I really do think that when we talk about the role of banks, the role of regulators, a, we need to tackle it jointly together with the government. Secondly, there must be a clear understanding that with a certain ratio to be achieved or implemented by the end of next year, nothing is actually won. We need the understanding that this is a transformation over the next 4, 5, 6 years in order to come into the direction of net zero. But if we stop from one day to the other, also what we as public companies are asked sometimes by some of our shareholders, we do actually nothing good for the long term to the society, to the environment, and it will, net zero, not help the climate. And therefore, we need the joint understanding that this is a long way of transformation. In this regard, I think the banks are very much there to support that. This is something where we want to be part of. But we need the understanding that this is a long-term race, that this needs joint understanding of regulators, governments and the private economy. And what Larry is saying is more than true. I can tell you, in our M&A activities, in the mandates we are getting, we get so many mandates that we should advise public companies in order to get rid of the so-called bad part of their production facilities. That goes privately. That goes somewhere else where it's not reported. That doesn't help the next generation. That is not the right thing to do. But therefore, we need to change the direction of speech, the direction how people and public companies are measured, and we need a different understanding what is really needed. And getting it right, ESG, getting it right, is a 10-year task starting now, and it must be a fundamental transformation. For that, the banks are there. And for that, to be honest, we need 2 other things: you need balance sheet in order to finance it, happy to do this; and in Europe, other than in the U.S., more than ever, we need the capital market's union. Because the financing needs, in order to transform the economy in Europe, cannot only be done by banks. We need a deeper capital market. And therefore, I kept saying and I keep saying, the green deal in Europe will only come if the capital markets will also come, the capital market's union will come to Europe. The one thing is a necessity for the other, and we should jointly work on both.

Larry, we see the huge volume targets out there. And this is very -- we're coming to an end in the final 1.5 minutes. We see these huge volume targets out there. What will be the future metrics banks have to follow, companies have to follow? Is it carbon footprint? Is it green asset ratio? What will be the future of what everybody will scrutinize?

It has to be more than that. Because just to further the conversation that Christian and I just had, Jörg, I don't believe in divestiture out of public companies. And so their carbon footprint is going to be larger for a while. But I want to understand how are they evolving into a more green foundational company. How are they moving? How are they creating green hydrogen from regular hydrogen? How are they doing this? Some of the top energy companies are going to be the leaders in the decarbonization component of sequestering carbon. And so it can't just be done through a metric that's saying -- and this is some of the risk we have. If we just use carbon footprint, then you have massive divestiture and the world doesn't get anywhere. It has -- these are very complex solutions that have to be done. And so to me, it's not about, okay, what's your carbon footprint? I mean they can do it for a BlackRock and we can do that. We can measure it there. But the companies that are essential in the carbon world -- and I'm talking about agricultural companies because agriculture represents 18% of the footprint of carbon. I'm talking about steel and cement. They represent 10%. We focus on a lot of other things, but there are many components that create this carbon footprint. It is not about just -- okay, a numeric number of where is your carbon footprint. It's about I want to understand, over this journey, how are you migrating and changing it? How are you creating -- I look at this using a financial term. I use the carbon -- or let's say, energy and oil, that's an IO stream, okay? How are you going to navigate your IO stream and create a new stream of revenues. Those are the things that we're going to do this fairly and justly. This is going to be how we're going to have to do it. The last thing I just want to say, and the link in ESG and E with the question on inflation, let's be clear, if we rush this and we -- if our solution is entirely just to get a green world, we're going to have much higher inflation because we do not have the technology to do all this yet to have it equivalent to the cheapness of hydrocarbons. And so that's going to be a big policy issue going forward, too. Are we going to be willing to accept more inflation if the inflation is to accelerate our green footprint? And that's going to be a big policy question.

A final question to both of you and just one word answer before I hand over then to Christian also for the one word answer and his final remarks. But Larry, with that complex issue, are you an optimist or a pessimist that we get that done fast enough?

I live my life as being an optimist. Because when we talk about the problems and when we see the problems and the severity of the problems, we solve solutions. That is the beauty of human beings. We proved it with COVID having vaccination within 10 months. So if we focus on it, we talk about it, we talk about how severe it is, we'll fix it.

Christian? Knowing you, you are an optimist.

Well, I couldn't agree more. I think I said in my first answer to one of the question, it now depends on leadership. And if you have the right people around with the right mindset and with the long-term horizon and with the right spirit, to be honest, we will get this done. You need now to really get the right people in the world together in order to address it. And we have proven so many things over the last years and decades that I don't think this will stop us.

Thank you so much for this seventh conversation with Larry Fink on our Global Financial Services and Fintech Conference. I think I'm speaking for everybody who has followed us in the last 40 minutes, Larry, we would like to see an eighth conversation with Larry Fink and Christian next year. Again, thank you so much, and thanks to everybody who followed us in the last 40 minutes. Thank you, and goodbye.