BlackRock, the world's largest money manager, plans to put sustainability and climate risks among the key tenets of its investing strategy, a move that its chief executive said should push financial institutions to prioritize climate change issues.
But activists noted the firm's lackluster history on this front, as well as the need for it to push further.
"Climate change has become a defining factor in companies' long-term prospects," BlackRock Chairman and Chief Executive Officer Larry Fink said in his annual letter to chief executives. "But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance."
In a separate letter to investors, BlackRock announced that it would exit investments with high environmental risks. Those include thermal coal, which is burned to produce electricity and creates carbon dioxide, a greenhouse gas. The firm also will offer new investment products that screen for fossil fuels.
Fink said the risks posed by rising world temperatures will affect "both our physical world and the global system that finances economic growth." He said that includes the $3.8 trillion municipal-bond market, which finances the roads, utility systems and other infrastructure vulnerable to the effects of devastating storms, wildfires or rising seas.
"This is going to change the municipal-bond market," Fink said in an interview with CNBC on Tuesday after the release of his letter. "Areas that are more impacted by climate change [are] going to have a harder time to finance their debt if they don't focus on the impact of climate change."
Those risks have been drawing increased scrutiny in the state and local government securities market, underscored in recent years by the wildfires that scorched California, the severe flooding of Houston and the heavy damage that Hurricane Maria caused in bankrupt Puerto Rico in 2017.
Over the past year, Pope Francis has met with chief executives and board leaders of leading oil and gas companies and financial firms, including Fink. Activists have started a campaign called Stop the Money Pipeline. And investors have flocked increasingly to mutual funds or money managers who screen out shareholdings in fossil fuel companies.
"This is a major, major crack in the dam," said Bill McKibben, a writer and climate activist who was arrested last week at a protest at a Chase Bank in Washington. "The financial powers in New York have tried to ignore climate risk, but that's now impossible; the pressure from activists, and from the climate chaos in the real world, is simply too great."
BlackRock oversees an industry-leading $7 trillion in assets, and its pivot is sure to be closely watched by its competitors -- Vanguard, T. Rowe Price and JPMorgan Chase among them -- and the rest of corporate America.
Fink's announcement doesn't mean BlackRock is selling out of the biggest producers -- including top shipper Glencore Plc.
BlackRock's discretionary active investment portfolios will sell out of all companies that get more than 25% of sales from thermal coal, Fink wrote in his letter to investors. There isn't a long-term economic or investment rationale for continuing to invest in the fuel, he said.
However, the revenue threshold means that large, diversified miners -- which also rank among the largest coal producers -- won't be affected. Glencore, of which BlackRock owns 6%, is the single biggest coal shipper, mining about 130 million tons last year. Yet its thermal coal revenue accounted for less than 10% of its total, thanks to the contribution from the company's trading operations.
Major coal producers Anglo American PLC and BHP Group also fall under the cap.
BlackRock's approach contrasts with Norway's $1 trillion sovereign wealth fund, which said last year that it would stop investing in companies that mine more than 20 million tons a year of thermal coal. Glencore, Anglo and BHP all fail to meet that requirement.
Many financial institutions have become more transparent and have marketed select funds that might appeal to customers concerned about climate change. Vanguard said in December that its funds included $319.82 billion in fossil fuel investments. In 103 of its funds, 6,457 fossil fuel stocks made up 8.48% of its assets. Nine Vanguard funds were "A Grade" fossil-free.
Earlier this month, BlackRock joined Climate Action 100+, an investor initiative to ensure the world's largest corporate emitters of greenhouse gases act to lessen their carbon footprints. BlackRock joined more than 370 global investors, a group that collectively manages more than $41 trillion in assets.
BlackRock's track record, however, has drawn criticism. Ceres, a sustainability nonprofit, has ranked BlackRock 43rd among 48 asset managers based on its history of backing few climate-related proposals from shareholders. But the group appeared encouraged by Fink's letter.
"BlackRock is now throwing their weight behind what already exists -- a global movement to really addressing sustainability in portfolios," said Kirsten Snow Spalding, senior department director of Ceres' investor network. "They're not the first to the party, but just adding their weight is critical."
Information for this article was contributed by Steven Mufson and Rachel Siegel of The Washington Post and by Danielle Moran and Thomas Biesheuvel of Bloomberg News.
Business on 01/15/2020
Print Headline: BlackRock says investment moves now key on climate risks