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Hello, I am Master Kim dreaming of a world where everyone is happy. Today, I'd like to talk about a hot topic recently around the world. You will find that everybody talks about it if you do Googling. That is ESG. I will chew it up today to say in a little gentle manner To put it differently, I will dissect ESG completely You will never want to miss it.
I mean it! I promise to give you a series of explanation of ESG including basic concepts, cases, investment strategies, implementation and so on I hope you stay with me throughout the series Today in the first episode I will begin with letters by Larry Fink, who became a world star quite recently I believe some of you may have heard of him already.
Larry Fink is a CEO of BlackRock, the world's largest asset management company. He is getting on the news these days. Another reason for his latest fame is that he is leading an ESG boom in the global investor society. What a surprise! BlackRock is managing $8.86 trillion of their clients' assets as of the end of 2020.
Of course, BlackRock does not own the assets, but manages them. It is referred to as AUM, standing for 'assets under management.' Can you believe it? Do you know the budget of the Korean government this year? About $500 billion. BlackRock's AUM are more than ten times the Korean government's budget and about double US government's budget.
BlackRock is known to depend mostly a passive investment strategy. Passive investment strategy represents benchmarking some indexes and making up portfolios according to the indexes. A representative passive fund is ETFs (exchange traded funds) which probably you may have heard Anyway, Larry Fink, a CEO of an asset management company managing such a tremendous AUM, sends an annual letter to CEOs around the world every year And his annual letter this year gained exponential interest and the following is my summary of his messages.
First, we came to realize seriously importance of ESG because of pandemic. Secondlly, considering our vulnerable way of life it is imperative to keep average temperature rise below 2 degree centigrade as most countries agreed in Paris agreement . Temperature has been rising since industrial revolution, and if the increase of temperature exceeds 2 degree then we will face a catastrophe.
And all the participating countries agreed to try to keep it below 1.5 degree if possible. Thus, Larry Fink emphasized the importance of our efforts to keep the promise And he also emphasized an effective measures for all parties to make it happen. That is, we need data to make right finance/ investment decisions We need not just economic performance data but also ESG data Good investment decision can be made only based on good data, don't you think so?
But in reality, many ESG information providers release so many different results that are conflicting and unreliable in many case Larry supports an idea that an authoritative and unified global standard setting body, not just private companies or assessment institutions, should be established. In fact, SASB of US was a guideline rather than a standard.
SASB, Sustainability Accounting Standard Board, published the guideline for 77 industries that is not mandatory and Larry endorses it He advocates its official approach, and he hopes to see a mandatory standards made by accounting standard bodies some day. We will talk a little bit about the idea later And what's his next point?
In ESG, E, S and G stand for Environment, Society and Governance, respectively They are referred to as non-financial indicators, because they are not economic ones. In general, most people think E the most important. And it really is Especially because the climate change issue is considered the most critical of all the ESG issues.
And he also emphasizes that S is as important as E. And he refers to one of common words, that is, DEI standing for Diversity, Equity and Inclusion. Yes, they are crucial and you will hear the words very often mentioned in the future Our future ESG discussion will center around climate change, diversity and inclusion above all And as a matter of fact they are the most critical keywords in SDG, Sustainable Development Goals defined by UN.
They are very important issues in social aspects of ESG Finally, he asserts that net zero leads to net positive. Have you heard of 'Net Zero"? Many countries including Korea declared to reduce net carbon emission to the level of zero by 2050 according to the Paris Agreement. It is also referred to as 'Carbon Neutral.' Carbon may be emitted to the air, but it can be recovered so the net emission will be zero.
Almost all the major emitters of the world declared net zero target by 2050, except for China with the target by 2060 Net positive means you can achieve an economic positive by attaining net zero. 'Positive' means a 'Plus' in profit. He thinks the ESG investment has now become a mainstream Investors can not only avoid a risk but also help find a profitable investment opportunity and increase return.
It is a corner stone of ESG investment strategy It is not about being good or acting responsibly Please don't misunderstand ESG and people grounded on ESG ESG represents an investment principle, philosophy and strategy And its goal is no doubt to make a fortune by taking advantage of ESG Don't forget that ESG investors do not aim for being good citizen Larry Fink is an investor, a genius in making money When he talks about ESG, it means that you can not succeed in investment without considering ESG And its a right time to do ESG investment which has become a mainstream.
I just have summarized Larry Fink's message in his letters to CEOs I hope you enjoyed ESG Episode 1, Larry Fink's letter to CEO. Please stay interested in Master Kim's ESG series If you liked today's episode, please click 'Like' or subscribe. Bye.
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