Larry Fink, CEO of the world’s largest asset manager BlackRock, is declaring “climate risk is investment risk” and says sustainability will be the corporation’s “new standard” for investing, a move that supporters say could bolster other companies to disclose their financial risks from climate change and other environmental problems.
In a much-anticipated Jan. 14 letter to corporate CEOs, accompanied by a separate executive board letter to clients, Fink made the declarations for BlackRock, which currently has $6.8 trillion in assets under management.
Giulia Christianson, a senior associate and head of sustainable investing at the non-partisan World Resources Institute (WRI) global research organization says the “whole package” of climate and sustainability commitments that the BlackRock letters discuss will be important in pushing corporations toward a longer-term mindset supporting climate action.
But she adds, “We know that investors need better disclosures about company climate risks and opportunities,” and suggests that such information “hopefully will drive better decisions by the companies themselves” to invest their capital in ways that support the carbon transition, sustainability, and provides long-term rewards.
In his letter to CEOs, Fink writes, “We believe that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions. This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers’ data.”
Some supporters say the declaration will push the investment community to more aggressively make non-fossil investments, and that it might also drive some companies to more actively cut their greenhouse gas footprints and take other sustainability measures -- but that will not happen automatically.
Environmental Defense Fund (EDF) in a report released last October presented a survey of more than 600 company officials on their firms’ adoption of pollution-control technology and methods. EDF’s survey found a major “opportunity gap,” with 92 percent of leaders agreeing that advanced technology could boost both their profits and their sustainability, but only 59 percent saying that they were in fact making those investments.
And BlackRock in a January 2019 statement noted: “Most corporate leaders claim to take a long-term approach. Yet a recent study stated that 87 percent of executives and directors feel most pressured to demonstrate strong financial performance within two years or less. The same study shows that companies that have a long-term mindset experience superior financial performance, with lower volatility, create more jobs, and invest more in their businesses.”
WRI’s Christianson suggests that climate is no longer a long-term issue but is urgent now, in the short-term. Just days before Fink released his letter to corporate CEOs, several WRI officials wrote a Jan. 8 blog post calling on BlackRock and other asset managers to take four important steps to advance corporate climate-conscious decisions.
WRI urged Fink to “Ensure board members support climate-informed corporate governance,” to “Require disclosure of climate-related risks and opportunities,” and to “Revisit product offerings and underlying investments,” which BlackRock says it will do in ways that are detailed in its “Dear Client” letter.
That client letter as issued by BlackRock notes that “Over the past few years, more and more of our clients have focused on the impact of sustainability on their portfolios,” driven by “an increased understanding of how sustainability-related factors can affect economic growth, asset values, and financial markets as a whole.”
Sustainability Efforts
BlackRock’s statement about sustainability issues impacting markets as a whole echoes concerns behind a 2019 Commodity Futures Trading Commission initiative to assess how climate change could destabilize markets and the global financial system
The WRI blog post also called for Fink to “Push companies to set science-based emissions reduction targets,” drawing on the Science Based Targets initiative’s methodologies when companies set such targets, which a number of major U.S. firms are doing.
Fink’s letter asks companies that BlackRock invests in to publish a disclosure aligned with the reporting frameworks of the Sustainability Accounting Standards Board and Task Force on Climate-related Financial Disclosures (TCFD). “This should include your plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, as expressed by the TCFD guidelines,” Fink says.
In its 2020 letters, BlackRock “made a lot of advances” toward meeting WRI’s proposals, says Christianson.
Another important sustainability step BlackRock recently took was joining more than 370 global investors as the latest signatory to the Climate Action 100+ initiative, according to a Jan. 9 announcement by Ceres, another leading sustainability organization. Ceres describes Climate Action 100+ as “an unprecedented global investor engagement initiative, to ensure the world’s largest corporate [GHG] emitters take necessary action on climate change."
According to Ceres, BlackRock’s decision to sign on to Climate Action 100+ “sends an important signal to companies around the world that climate risk is a material financial risk that must be addressed to meet investor expectations."
Many points in BlackRock’s letters “have been made before,” but for CEOs to hear the points directly from Fink could “really drive home” the prior messages, Christianson says.
Environmentalists hope BlackRock’s announcements will motivate much broader corporate action akin to the climate action leadership provided by 20 Fortune 500 companies that are members of the CEO Climate Dialogue (CCD).
After President Donald Trump’s initiation of U.S. withdrawal from the Paris agreement, WRI’s CEO Andrew Steer wrote a Nov. 8 blog post lauding the CCD, which is urging Congress to enact bipartisan, market-based, climate legislation aligned with the Paris goals.
Going forward, WRI will “closely watch” how BlackRock engages with CEOs through its participation in the Climate Action 100+ effort, says Christianson. WRI will also be watching how BlackRock treats shareholder climate resolutions, which the firm has not supported in the past. WRI also wants BlackRock to use its powerful votes cast at shareholder meetings to consistently vote against board directors who stand in the way of corporate climate action.
Regarding the vital issue of more granular, higher quality disclosures, WRI and others are looking at the starting point for more meaningful disclosures, Christianson adds. -- David Clarke
