‘A fundamental reshaping of finance’: The CEO of $7 trillion BlackRock says climate change will be the focal point of the firm’s investing strategy

Source: BusinessInsider 15/01/2020

  • The CEO of $US7 trillion investment firm BlackRock said in his annual letter on Tuesday that climate change will become the centre of the firm’s investment strategy
  • The risk from climate change will force businesses and investors to shift their strategies, leading to a ā€œfundamental reshaping of finance,ā€ Larry Fink said.
  • Fink warned that risk will cause a ā€œsignificantā€ reallocation of capital ā€œsooner than most anticipate.ā€
  • He called on governments, companies, and investors to combat climate change.
  • This article is part of theBetter CapitalismĀ series, which tracks the ways companies and individuals are rethinking the economy and role of business in society.

Climate change will be at the centre of $US7 trillion BlackRock’s investment strategy, the firm’s CEO Larry Fink announced on Tuesday.

In hisĀ annual letter to CEOs, Fink said that climate change will lead to a ā€œfundamental reshaping of financeā€ and that the evidence on climate change is ā€œcompelling investors to reassess core assumptions about modern finance.ā€

The move could signal a significant shift in investment banking and business as a whole. Fink’s influential letter is highly regarded by CEOs and finance executives, and often sets the tone for the industry.

Fink warned that aside from the physical risks, climate change could also impact anything from municipal bonds to 30-year mortgages to inflation and interest rates.

ā€œInvestors are increasingly reckoning with these questions and recognising that climate risk is investment risk,ā€ Fink said in the letter. He warned companies, investors and governments that ā€œin the near future – and sooner than most anticipate – there will be a significant reallocation of capital.ā€

BlackRock will start integrating climate change as a central part of its investing by exiting investments with a ā€œhigh sustainability-related risk,ā€ such as thermal coal producers, Fink said. The firm will also launch new investment products that screen fossil fuels and more broadly make sustainability ā€œintegralā€ to the way it builds investment portfolios.

ā€œOur investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,ā€ Fink said. ā€œAnd with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.ā€

A call for help from others

Aside from BlackRock’s changes in strategy, Fink also called on governments and other companies around the world to combat climate change.

ā€œWhile government must lead the way in this transition, companies and investors also have a meaningful role to play,ā€ Fink said. ā€œEvery government, company and shareholder must confront climate change.ā€

He predicted that companies who shift to a more climate-friendly strategy will reap the benefits.

ā€œCompanies and countries that champion transparency and demonstrate their responsiveness to stakeholders… will attract investment more effectively, including higher-quality, more patient capital,ā€ he said.

Fink also mentioned that BlackRock will work to be more transparent, adding that firm will use frameworks like the Sustainability Accounting Standards Board (SASB) as a set of standards for reporting sustainability information.

Beyond that, Fink said BlackRock will use its position as an industry leader and proxy-voting titan to impress environmentally sustainable practices.

ā€œWhere we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable,ā€ Fink said.

He continued: ā€œWe will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.ā€

 

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