The shift by the nation’s leading money manager is sure to be closely watched by its rivals and the rest of corporate America.
By Steven Mufson and Rachel Siegel
BlackRock, the world’s largest money manager, will make sustainability and climate risks 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 and the need for it to push further.
“Climate change has become a defining factor in companies’ long-term prospects,” BlackRock chairman and chief executive 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 it would exit investments with high environmental risks, including thermal coal, which is burned to produce electricity and creates carbon dioxide, a greenhouse gas. BlackRock will also launch new investment products that screen for fossil fuels.
The nation’s largest financial institutions are under increasing pressure from investors, activists and some political leaders for their tepid response to climate change, even as the Trump administration has systematically rolled back environmental regulations to promote economic growth.
Over the past year, Pope Francis met with chief executives and board chairs of leading oil and gas companies and financial firms, including Fink of BlackRock, and urged them to take steps to curb climate change. Activists have launched 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 the District. “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.
Many of them 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 percent of its assets. Only nine Vanguard funds were “A Grade” fossil free.
The investment firm Raymond James estimates that $12 trillion, or 26 percent of all U.S. professionally managed assets, are covered by some kind of environment, social or governance screen. Of that amount, the largest slice — $3 trillion — is centered on climate.
In interviews, Fink said the science behind climate change is pushing clients to reassess their long- and short-term investments.
“Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds?” Fink wrote in his chief executive letter. “What will happen to the 30-year mortgage — a key building block of finance — if lenders can’t estimate the impact of climate risk over such a long timeline?”
He said the risks posed by climate change are the most significant he’s seen in four decades of finance. Fink, a Democrat, said he wasn’t acting as an environmentalist but, rather, as a capitalist with a responsibility to clients and investors.
“We don’t have a Federal Reserve to stabilize the world like in the five or six financial crises that occurred during my 40 years in finance,” Fink told CNBC. “This is bigger, it requires more planning, it requires more public and private connections together to solve these problems.”
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.
But BlackRock’s past track record has been weak. 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 the Rev. Kirsten Snow Spalding, senior department director of Ceres’s investor network. “They’re not the first to the party, but just adding their weight is critical.”
One of the companies that has taken a position on climate issues is Goldman Sachs, which in December said it would no longer lend money to oil and gas projects in the Arctic. The bank said it considered climate change and its effects on indigenous people and wildlife. “We will decline any financing transaction that directly supports new upstream Arctic oil exploration or development,” Goldman said. “This includes but is not limited to the Arctic National Wildlife Refuge.”
But Goldman hasn’t sworn off all oil and gas investments. Around the same time it issued its environmental concerns, one of its analysts recommended eight oil stocks for investors to buy.
What may be bad for the borrowers of money for fossil fuel investments may not be bad for the financial investment and management business.
Fink said he has increasingly heard from clients worldwide who want to factor climate change into their investment portfolios. And he said he expects a marked generational change as young people increasingly focus on sustainable investing.
Fink said financial investing will have to play a role in “a huge energy transition” over the coming decades. That includes weighing whether fossil fuels, for example, are a good investment both today and 10 years down the line.
“We need to have an organized plan,” Fink told CNBC. “We are not running away from hydrocarbons. We believe they play a role. We believe natural gas plays a very large role in the energy transition. We believe this is a process.”
While Fink on Tuesday clearly signaled that BlackRock would not support coal firms, he did not altogether rule out support for oil and natural gas companies. Activist groups said the test would come in the spring when BlackRock will have an opportunity to use its massive stock holdings to vote on shareholder resolutions linked to climate change.
“One key thing we’ll be looking for is how BlackRock changes its behavior in voting season,” said Ben Cushing, a climate campaign representative at the Sierra Club. “For years it held back on holding companies accountable on climate action. Now, it has the opportunity as it heads into annual shareholding season to vote the right way in the companies it has major stakes in.”
“BlackRock is at the same place the Obama administration was a decade ago, with natural gas as a bridge fuel,” McKibben, the climate activist, said. “The science has moved decisively on, and so we will push them hard going forward.”