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 firmās investment strategy
- The risk from climate change will force businesses and investors to shift their strategies, leading to a āfundamental reshaping of finance,ā Larry Fink said.
- Fink warned that risk will cause a āsignificantā reallocation of capital āsooner 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 BlackRockās investment strategy, the firmās CEO Larry Fink announced on Tuesday.
In hisĀ annual letter to CEOs, Fink said that climate change will lead to a āfundamental reshaping of financeā and that the evidence on climate change is ācompelling investors to reassess core assumptions about modern finance.ā
The move could signal a significant shift in investment banking and business as a whole. Finkās 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.
āInvestors 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 āin the near future ā and sooner than most anticipate ā 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 āhigh 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 āintegralā to the way it builds investment portfolios.
āOur investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,ā Fink said. āAnd 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 BlackRockās changes in strategy, Fink also called on governments and other companies around the world to combat climate change.
āWhile government must lead the way in this transition, companies and investors also have a meaningful role to play,ā Fink said. āEvery 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.
āCompanies and countries that champion transparency and demonstrate their responsiveness to stakeholdersā¦ 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.
āWhere 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: āWe 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