Biggest Investment House: Business Needs to Act on Climate or Governments Will

January 26, 2021

I have a rule of thumb.
Don’t argue with thermometers. Don’t argue with rising oceans.
And don’t argue with investment funds that have 7 trillion dollars under management.

A year ago, the world’s biggest investment fund, Black Rock, put out a letter indicating that climate and sustainability would be their guiding principles going forward.

Then Covid happened.
Under the severe stress test, renewable energy bloomed, and fossil fuels folded.
Now, Blackrock is back and doubling down.

New York Times:

A year ago this month, the BlackRock chief Laurence D. Fink wrote a letter to the world’s C.E.O.s with an urgent message: Climate change will be “a defining factor in companies’ long-term prospects.” Underscoring his point, he added, “We are on the edge of a fundamental reshaping of finance.”

Coming from arguably the world’s most powerful investor — BlackRock controls nearly $9 trillion, making it far and away the largest such firm — this letter landed with seismic force in boardrooms across the globe. In the weeks that followed, Microsoft announced a plan to be carbon-negative by 2030, Salesforce pledged to conserve or restore 100 million trees over the next decade and even Delta Air Lines announced a $1 billion effort to be carbon-neutral in 10 years.

Still, skeptics argued that Mr. Fink’s support for the reform-minded E.S.G. movement — which stands for environmental, social and governance — was a marketing gimmick that companies would back in an economic boom but shun in a crisis. If corporate America had to pick between cutting sustainability programs or dividends for investors, the thinking went, sustainability programs would be the first to go.

Then the Covid-19 pandemic arrived and something unusual happened: E.S.G. didn’t collapse, it accelerated. In particular, the emphasis on climate change became an even greater focus within companies and among investors, who piled into the stocks of sustainable companies en masse — driving up the values of companies like Tesla and doubling the money invested in sustainability-oriented mutual funds. This gave fuel to Mr. Fink’s thesis: Green investing is profitable.

That’s why Mr. Fink’s latest annual letter to corporate leaders — which he is sending out Tuesday morning, and which was obtained by The New York Times — will once again grab attention. And this year, with an even more ambitious blueprint for businesses that BlackRock invests in, it may have an even bigger impact.

Mr. Fink is now calling on all companies “to disclose a plan for how their business model will be compatible with a net-zero economy,” which he defines as limiting global warming to no more than 2 degrees Celsius above preindustrial averages and eliminating net greenhouse gas emissions by 2050. “We expect you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors,” he wrote.

When Mr. Fink makes what sounds like a request, in truth, it is much more than that. BlackRock’s size gives it enormous influence: Mr. Fink can seek to oust directors of companies that he doesn’t believe are heeding his call and he can dump the shares of companies owned by the firm’s actively managed funds. Last year, the firm voted against 69 companies and against 64 directors for climate-related reasons, while putting 191 companies “on watch.”

Of course, the firm is unable to sell the shares of companies in passive indexes like those that track the S&P 500 (which remain a huge portion of its assets under management). But increasingly, BlackRock is creating sustainability-oriented index funds that have discretion in selecting which companies to include or exclude.

To that point, Mr. Fink said in his letter that his firm planned to adjust its investment process for its actively managed funds, adopting what he is calling a “heightened-scrutiny model” for climate risk that included “flagging holdings for potential exit.”

He also said that the firm planned to publish “a temperature alignment metric for our public equity and bond funds, where sufficient data is available” and that it would start new products “with explicit temperature alignment goals, including products aligned to a net-zero pathway.”

This could have the same effect for investors as a calorie count on a menu for diners, a nudge toward making more informed choices. In the future, big public pension funds and other investors could have firms like BlackRock create custom indexes for them based on such data. On Monday, New York City’s pension fund said it would divest $4 billion in fossil fuel-linked assets in its portfolios.

These sorts of actions won’t sacrifice investment performance, Mr. Fink said. Sustainable funds outperformed the market last year, he noted, especially during the worst moments of the pandemic downturn. “The more your firms are seen to embrace the climate transition and the opportunities it brings, the more the market will reward your firms with higher valuations,” he wrote in the letter to C.E.O.s.

UPDATE:

Critics respond.

BlackRocksBigProblem:

Today, BlackRock released CEO Larry Fink’s annual letter to CEOs as well as a letter to its clients. The letters spelled out the next steps the world’s largest asset manager will be taking to address the climate crisis. With close to $9 trillion in assets under management, BlackRock has expansive power and responsibility to push for a sustainable future. While today’s letters indicated several steps in the right direction for the financial giant, it falls short of the visionary financial leadership that is needed to meet the scale and urgency of the climate crisis.

Partners within the BlackRock’s Big Problem network, a coalition of environmental, investor, and grassroots advocacy organizations, issued the following statements:

Diana Best, Senior Strategist, The Sunrise Project:
“It’s important that the world’s largest financial institution is acknowledging that we have an urgent, moral, and financial imperative to address runaway climate change. But ultimately, decarbonization is the only result that matters if we are going to avert the worst impacts of climate change. While this year’s letters indicate progress with a glancing reference to interim targets, BlackRock hasn’t actually offered a pathway for how it will take significant and adequate carbon out of its portfolios. We welcome steps in the right direction but will continue to push BlackRock toward the accountable and visionary leadership that is needed to tackle the crisis.”

Ben Cushing, Senior Campaign Representative, Sierra Club:
“Activists and investors around the world have been pressuring BlackRock to deliver on its climate commitments and slash emissions from its portfolios. Today’s letters indicate that our pressure is forcing change, as demonstrated by BlackRock’s commitment to accelerate the transition to a net-zero world. Now, BlackRock’s rhetoric needs to be backed up with concrete actions, starting with exiting its holdings in companies expanding fossil fuel production and voting against the boards of laggard companies this shareholder season. The failure of Vanguard and other leading US asset managers to show similar leadership is increasingly glaring, and they will face mounting pressure to act quickly to reduce their climate impact.”

Pete Sikora, Climate Director, New York Communities for Change:
“Public pressure on financial institutions like BlackRock brings the scrutiny needed to win change. We’ll be watching to see if BlackRock is full of hot air on climate, or if it is turning a corner into serious action. In contrast to BlackRock, NYC just began implementing $4 billion in divestment from the fossil fuel industry. BlackRock should take a hint and concretely commit to ending investments in the companies that drive climate destruction. This year, BlackRock should vote against all directors of corporations that refuse to confront their complicity on climate change.”

Erika Thi Patterson, Climate and Environmental Justice Campaign Director, The Action Center on Race and the Economy:
“While Larry Fink mentioned racial justice in his letter, he has failed to be accountable for BlackRock’s role in exploiting and harming Black, brown, and Indigenous communities while fueling our climate crisis. BlackRock cannot be the largest holder of coal and one of the biggest holders of companies tied to tar sands and deforestation and claim that it cares about racial justice. Unless BlackRock stops backing the companies that pollute our air, water, and land, it continues to be a party to the structures of environmental racism, which lead to lower life expectancy rates and higher rates of serious diseases in BIPOC communities. Until it acts to reverse these harms, it is responsible for profiteering off the suffering of BIPOC communities worldwide.”

More at link.

5 Responses to “Biggest Investment House: Business Needs to Act on Climate or Governments Will”

  1. greenman3610 Says:

    test

  2. Keith McClary Says:

    test

  3. greenman3610 Says:

    posting for Keith McClary:

    If it is left to capitalism, the “plans” will be vague, aspirational ambitions like this:

    “Net zero emissions by 2050

    Cenovus’s long-term ambition is to reach net zero emissions by 2050. This will require ongoing focus on technology solutions beyond those that are commercial and economic today. We continue to identify opportunities to participate in longer-term solutions to address emissions from our operations and beyond. This includes extensive collaboration efforts with our peers, academics, other industries and entrepreneurs from around the world.”


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