Larry Fink has issued a new call to action on climate change for companies around the world: Start planning for a net-zero economy.

A year ago, the BlackRock Inc. chairman and CEO warned of the "fundamental reshaping of finance" that climate change was sure to cause in the coming years to companies that did not appropriately handle the risks their businesses faced. Then, COVID-19 struck. While the pandemic upended everyday life, businesses and economies around the world, the progress in sustainable investing only seemed to accelerate, Fink wrote in his 2021 annual letter released Jan. 26.

Now, Fink is doubling down on climate by urging corporate executives to disclose how their businesses are prepared for a "net zero world" where net greenhouse gas emissions are eliminated by 2050 with plans to take a harder stance on divesting from certain companies.

"Today we are on the cusp of another transformation. Better technology and data are enabling asset managers to offer customized index portfolios to a much broader group of people — another capability once reserved for the largest investors," Fink wrote. "As more and more investors choose to tilt their investments toward sustainability-focused companies, the tectonic shift we are seeing will accelerate further. And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company's stock."

With $8.677 trillion in assets under management, BlackRock is widely viewed as one of the most powerful investors in the world. Its continually growing pool of assets have made it an unprecedented force in corporate governance that allows it tremendous sway in the reelection of board members, CEO compensation packages and in how companies view emerging issues such as climate change.

Fink's 2020 letter ignited a worldwide debate over the viability and efficacy of sustainable investing. The asset manager was overhauling how it approached the threat of climate risk among its thousands of portfolio companies by adopting sustainability as a "new standard" in its investment philosophy, a step seen as the first material sign of change in how BlackRock thought about climate risk. The letter included the announcement that BlackRock would divest from any company in its active portfolio that generates at least a quarter of its revenue from thermal coal production.

Included in the 2020 letter was a note that companies should report sustainability data that aligns with the recommendations of the Task Force on Climate-related Financial Disclosures, or TCFD, and the Sustainability Accounting Standards Board, or SASB. In the last year, Fink wrote that there has been a 363% increase in SASB disclosures and more than 1,700 organizations declaring their support for the TCFD.

BlackRock wants companies to now go one step further by disclosing their board-reviewed plans for how they will handle a net-zero economy in a way that aligns with their long-term strategies. It is not just companies that should be doing so either. Public debt issuers should also disclose how they are handling climate-related risks, Fink wrote.

There is still more to be done, though, according to the asset manager's critics. Gaurav Madan, senior forests and lands campaigner at Friends of the Earth, called BlackRock's aim to cut emissions by 2050 "too little, too late" in a statement. Madan, whose group is a part of the BlackRock's Big Problem campaign, separately called out a lack of timing and implementation details about BlackRock's latest plans. Others like Michael Brune, executive director of the Sierra Club, have previously written about the need to push BlackRock to stretch its divestment efforts into its passive portfolio, which represents the lion's share of its assets. The Sierra Club is also part of the BlackRock's Big Problem campaign.

Passive fund managers like BlackRock have historically relied on engaging with management teams at the companies that make up the exchange-traded funds and index funds in their portfolios. But BlackRock itself seemed to acknowledge that that was not enough in December 2020, when it outlined its stewardship priorities for the coming year, including its growing willingness to support shareholder proposals "without waiting to assess the effectiveness of engagement."

The investment giant is instituting a "heightened scrutiny model" for managing sustainability risk in its active portfolio too. Applicable to companies with "a particularly significant climate-related risk" due to high carbon levels, a lack of preparation for the net-zero transition or lacking reception to BlackRock's engagement strategies, the asset manager will "flag these holdings for potential exit" from its active portfolios, in addition to using its voting power, when it does not see enough progress.

"As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders — with customers, policymakers, employees and shareholders — by inspiring confidence that they can navigate this global transformation," Fink wrote. "But companies that are not quickly preparing themselves will see their businesses and valuations suffer, as these same stakeholders lose confidence that those companies can adapt their business models to the dramatic changes that are coming."