World’s Largest Asset Manager Places Climate at Center of US$7 Trillion Strategy

RIO DE JANEIRO, BRAZIL – BlackRock CEO Larry Fink included an urgent observation in his annual letter to US corporate executives: Climate change will transform global finances sooner than one might think.

Fink made the most serious warning so far to business leaders regarding the climate crisis, saying it is an issue that must be addressed by everyone.

It may be more difficult than it seems for a company where nearly 70 percent of its US$7 (R$28) trillion in assets are in indexed products. Changing positions in these funds depend on what is included in the benchmarks determined by companies like MSCI.

Demonstrators have been hounding Fink trail at work, lectures, and formal events, condemning BlackRock for failing to act against global warming and other issues. On Tuesday, January 14th, the executive disclosed a specific set of climate-related changes in BlackRock’s investment procedures.

“Climate change has become a defining factor in the long-term prospects of companies,” wrote Fink in his annual letter to corporate executives. “Awareness is changing rapidly, and I believe we are on the verge of a fundamental overhaul of finance”.

Fink addresses the issue in the face of increased pressure on sustainability. BlackRock, in particular, faces increasing scrutiny for its behavior and voting record on environmental issues.

Among the changes highlighted on Tuesday: making sustainability integral to portfolio building and risk management; the removal of investments that represent a high risk related to sustainability; the launch of investment products that monitor fossil fuels; and strengthening the company’s commitment to sustainability and transparency in its corporate governance activities for investments.

The company will withdraw from investments in debt and shares of thermal coal producers in its active portfolios. The company holds approximately US$1.8 trillion in assets under management.

Although changing the share of index-linked products may be complicated, BlackRock said it intends to take several measures to include climate considerations in its passive funds.

The company intends to double its pool of sustainable index funds to about 150 and will press index providers to create sustainable versions of its key indicators, according to a note to customers describing the changes.

Groups such as Amazon Watch, Sunrise Project and coalitions of young activists have recently pressed BlackRock for greater action around the global crisis caused by climate change.

The size of BlackRock places the company in a delicate position: operating in over 30 countries and as one of the largest investors in most US publicly traded companies, its clients include large sovereign wealth funds, public pension plans, and financial advisors with views that are not necessarily aligned with what to do about climate change and social justice issues.

Diana Best, a senior strategist with the Sunrise Project, a nonprofit NGO that seeks to link organizations to fight climate change, said Fink’s letter and BlackRock’s business changes are a good example.

“BlackRock’s new initiatives correspond to the size of the crisis we are facing,” said Best in an email statement. “Putting climate change at the absolute core of its business is the way every company must address this global emergency”.

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