On 14 January 2020, an open letter stating that climate change is a significant investment risk was released by BlackRock, the world’s largest asset management firm. In his annual letter to the chief executives of the world’s biggest companies that BlackRock has invested in, Laurence D Fink, its founder and chief executive, announced that his firm would make investment decisions with environmental sustainability as a core goal. BlackRock has more than $7 trillion in assets under management.
The letter states that climate change has become a ‘defining factor in companies’ long-term prospects’. Fink further writes that ‘we are on the edge of a fundamental reshaping of finance.’ This statement is important because BlackRock, due to its size and reputation, has enormous clout among business elites and the largest corporations in the world.
As part of its own commitment towards making sustainability a key part of its investment approach, BlackRock announced a slew of measures including making sustainability integral to portfolio construction and risk management, exiting investments that have high sustainability-related risks like thermal coal producers, launching new investment products that screen fossil fuels, and doubling its offerings to increase its sustainable assets from $90bn to $1trn within a decade. It will also ask for greater disclosure from all companies on their carbon emissions and climate risks. Even then, since it’s not divesting completely from energy companies, it will remain one of the world’s largest investors in fossil fuel firms.
As The Economist noted, the direct impact of these steps will be limited. For example, the pledged coal divestments are less than 0.1 per cent of its assets. Also, its proposed disinvestment in coal stocks is at a time when coal is already being used less in most parts of the world (except Asia). In 2019, BlackRock opposed 93 per cent of shareholder resolutions in America urging companies to become greener, as per Morningstar, a research firm. And it only recently joined Climate Action 100+, a coalition of asset managers whose goal is to force big polluters to clean up and lower emissions.
These measures have come after years of sustained pressure by climate activists and even members of the US Congress. The jury’s still out if it’s a case of too little too late.