BlackRock makes sustainability its “new standard for investing”

In a company Letter to Clients and CEO Larry Fink’s annual Letter to CEOs, BlackRock—the world’s largest asset manager—has declared it will from now on treat sustainability as its “new standard for investing”.

The Letter to Clients takes the view that:

Resilient and well-constructed portfolios are essential to achieving long-term investment goals.

It goes on to state:

Our investment conviction is that sustainability-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.

BlackRock says it will work to enhance the transparency of sustainable (and, by extension, unsustainable) characteristics of all of its products, funds, and investment options.

The letter recognizes that the global energy transition is rapidly advancing, with new, clean, high-efficiency energy technologies providing more room for both expansion of market share and growth of invested value. In light of this, the company commits to expand active sustainable investing strategies, diversity its sustainability focused funds, double its offering of ESG-rated exchange traded funds (ESG ETFs), and work with outside indices “to expand and improve the universe of sustainable indexes”.

In his 2020 Letter to CEOs, BlackRock CEO Larry Fink notes:

Climate change has become a defining factor in companies’ long-term prospects.

As such, “climate risk is investment risk”, and so there is no sustainable bottom-line investment strategy going forward that is not climate-smart. Fink also attaches the obligation to deliver climate-smart investment value to the firm’s fiduciary responsibility:

As a fiduciary, our responsibility is to help clients navigate this transition. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.

Fink also committed BlackRock to requiring enhanced disclosure of climate-related risk and resilience, both from its own funds and products and from companies it invests in, noting the firm “voted against or withheld votes from 4,800 directors at 2,700 different companies”. Fink pledges that BlackRock:

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.

It is increasingly clear that failure to catch up to the accelerating pace of climate-smart innovation will put industrial companies, local and regional economies, and major investment funds, at risk.

  • Mark Carney—then governor of the Bank of England—recently said companies that don’t move rapidly toward zero emissions “will go bankrupt“.
  • In light of this threat, the UK is stress-testing banks for climate risk and resilience.
  • Three-quarters of all UK banks are now actively examining and disclosing climate risk.
  • There is, effectively, no safe way to profit from ignoring climate risk.

With $7 trillion in assets under management, BlackRock has the reach to comprehensively change mainstream financial sector dynamics relating to carbon liability disclosure, stranded asset risk, integration of science-based decision-making with regard to climate resilience, and support for climate-smart finance as the defining standard of the coming decade.

We are rapidly moving into the race to the top stage of global climate action collaboration.

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