BlackRock will put climate change at the center of the investment strategy

Laurence D. Fink, founder and CEO of BlackRock, plans to announce on Tuesday that his company will make investment decisions with environmental sustainability as its main objective.

BlackRock is the largest in its field, with almost $ 7 trillion under management, and this movement will fundamentally change its investment policy, and could change the way the United States does business and press other big money managers to Follow his example.

Mr. Fink’s annual letter addressed to the executive directors of the world’s largest companies is closely watched, and in the 2020 edition he said that BlackRock would begin to emerge from certain investments that “pose a high risk related to sustainability”, like those of coal producers. Its intention is to encourage all companies, not just energy companies, to rethink their carbon footprints.

“Awareness is changing rapidly, and I think we are on the verge of a fundamental reform of finances,” Mr. Fink wrote in the letter, which was obtained by The New York Times. “The evidence on climate risk is forcing investors to reevaluate the basic assumptions about modern finance.”

The firm, he wrote, would also introduce new funds that avoid fossil-oriented actions, move more aggressively to vote against management teams that are not making progress in sustainability, and will pressure companies to reveal plans “to operate under a scenario in which Paris The objective of the agreement to limit global warming to less than two degrees is fully met.”

Mr. Fink has not always been the first to address social problems, but his annual letter, as his opinion two years ago that companies He needed to have a purpose beyond profit: he has the influence to change conversations within the boardrooms around the world.

And now Mr. Fink is sounding an alarm about a crisis that he believes is the deepest in his 40 years in finance. “Even if only a fraction of science is right today, this is a much more structural crisis in the long term,” he wrote.

A long-time Democrat, Fink insisted on an interview that the decision was strictly commercial. “We are fiduciaries,” he said. “Politics is not part of this.”

BlackRock itself has been criticized by both industry and environmental groups for being behind in driving these problems. Last month, a British hedge fund manager, Christopher Hohn, said it was “terrible” that BlackRock did not require companies to disclose their sustainability efforts, and that the company’s previous efforts had been “full of green washing.” “.

Climate activists organized several protests outside the BlackRock offices last year, and Mr. Fink himself received letters from members of Congress urging more action on climate-related investments. According to Ceres and FundVotes, a unit of Morningstar, BlackRock had one of the worst voting records on climate issues.

In recent years, many companies and investors have pledged to focus on the environmental impact of companies, but none of the country’s largest investors have been willing to make it a central component of their investment strategy.

In that context, the Fink movement is a milestone, one that could stimulate a national conversation between financiers and policy makers. However, it is also possible that some of the hottest climate activists see it as a failure.

Even so, the new approach can put pressure on the other big money managers and financial firms in the United States – Vanguard, T. Rowe Price and JPMorgan Chase, among them – to articulate more ambitious strategies around sustainability.

When 631 investors around the world, representing about $ 37 billion in assets, He signed a letter last month asking governments to step up their efforts against climate change, the largest US firms were remarkably absent.

BlackRock’s decision can grant C.E.O.s a license to change its own company’s strategy and focus more on sustainability, even if doing so reduces short-term profits. Such a change could also provide coverage to banks and other financial institutions that finance carbon-emitting companies to change their own policies.

If Mr. Fink had moved a decade ago to withdraw BlackRock funds from companies that contribute to climate change, his clients would have received good service. In the last 10 years, until Friday, companies in the energy sector of the S&P 500 had earned only 2 percent in total. In the same period, the broader S&P 500 almost tripled.

In an interview, Mr. Fink said the decision was developed from conversations with “business leaders and how they are thinking about it, talking with different scientists, reading different research.” Mr. Fink asked BlackRock to investigate the economic impacts of climate change; He discovered that they are already appearing significantly in the form of higher insurance premiums, for fires and floods, and hopes that cities will have to pay more for their bonds.

Wherever he goes, he said, he is bombarded with questions about the weather by investors, often excluding topics that until recently were once considered more important. “Climate change is almost always the main problem that customers around the world pose with BlackRock,” he wrote in his letter.

He wrote that he anticipated a major change, much earlier than many might imagine, in the way money will be allocated.

“This dynamic will accelerate as the next generation takes the helm of government and business,” he wrote. “As billions of dollars change to the millennium generation in the coming decades, as they become CEOs and CIOs, as they become political leaders and heads of state, they will reshape the global approach to sustainability. “

While BlackRock makes its ecological momentum, the Trump administration is going in the opposite direction, repealing and weakening laws designed to protect the environment and promote sustainability. In fact, Mr. Fink’s effort seemed to be another example of the private sector pressing on issues that the White House has abandoned.

Still, Mr. Fink made it clear that while he intends for the company to consider climate risks, he will not seek a widespread sale of energy companies that produce fossil fuels. Due to its large size, BlackRock will continue to be one of the world’s largest investors in fossil fuel companies.

“Despite recent rapid technological advances, science does not yet exist to replace many of the essential uses of hydrocarbons today,” he wrote. “We must take into account the economic, scientific, social and political realities of the energy transition.”

BlackRock manages money for countries around the world, as well as states and municipalities across the country. It could face opposition for its new position in areas that benefit from fossil fuels, such as the countries of the Middle East or the states where oil has become an important part of their economies.

Fink said that because much of the money managed by BlackRock is invested in passive index funds such as those that track the S&P 500, the company could not simply sell shares in companies that it believed were not focused on sustainability. But he did say that the company could do so in what is known as “actively managed funds”, in which BlackRock can choose which actions are included.

BlackRock also plans to offer new passive funds, including funds for the target date that are based on a person’s age and are intended to prepare for retirement, which will not include fossil fuel companies. Investors may choose these instead of more traditional funds. To the extent that fossil fuel companies are on an index, BlackRock plans to press them to consider their eventual transition to renewable energies. Fink said the company would vote against them if they don’t move fast enough.

“We will be increasingly willing to vote against management and board directors when companies are not making sufficient progress in disclosures related to sustainability and business practices and underlying plans,” he wrote.

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