With $7.5 trillion under its control, BlackRock is the world's largest asset management company, and it's now turning its attention to combatting the climate crisis and conserving Earth’s ecosystems.
If the planet is lucky enough to avoid another Trump presidency and Joe Biden takes his place, there is a promised $2 trillion investment in greening the economy and fighting climate change. Across the pond in Europe, the EU and its assembled governments are promising a similar figure for the same purposes. That's all good reason for optimism. But it also needs multi-national companies and investors to get on board too if we are to achieve the momentum necessary to get the job done.
So, news of what BlackRock is pivoting towards is nothing but good news. Larry Fink (pictured) is the chairman and CEO of BlackRock, the world’s largest asset management company, responsible for the fate of trillions of dollars of other people’s capital. Fink has written letters to all the CEOs of companies he invests in informing them that climate change will now become the central tenant of his investment strategy.
“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote. “Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity - a risk that markets to date have been slower to reflect.
But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
BlackRock is not only adjusting their management strategies, but also the relationship with the companies they invest in. This means that before making investment decisions, BlackRock will require companies to disclose any climate-related risks for their future, as well as plans for how they would operate under limits or constraints that could arise from Paris Agreement targets to keep warming under 2 degrees Celsius.
BlackRock will also dump shares from companies in its portfolios who manage 25% of their wealth from coal production or utilization, which already costs in many places 50-100% more to maintain and manufacture than renewables.
Fink added: “We 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.”
More and more, investment companies are moving away from anything that reeks of CO2. This shift in market forces will be a much more powerful catalyst for change than the activism that, to give credit where credit is due, made these shifts possible - and it’s high time too.
If a company as substantial as BlackRock is pivoting this way, you can be sure that there will also be underlying upsides from an economic basis too. And that is, arguably, the best news of all because, let's face it, if everyone believed that there was less money to be made by switching to eco-centric policies and investment decisions, it would require governments to drive the markets.
Happily, the evidence is increasingly powerful that green investments provide greater returns on investment than traditional industries.
After the 2008 financial crisis, green investment paid dividends. Coronavirus presents an even greater opportunity. A green recovery can produce higher returns on public spending and create more jobs in both the short term and the long term, compared to the alternative of pouring stimulus cash into the fossil fuel economy.
Those findings come from a study of the potential for a green recovery, based on a survey of finance ministries and central bankers, and a comparison with the aftermath of the financial crisis of 2008, conducted by the Nobel prize-winning economist Joseph Stiglitz, former World Bank chief economist Lord Stern, and leading economists from Oxford University.
After the financial crisis in 2008, calls for a green recovery were partially successful. About 16% of the global stimulus spending was green, including subsidies for renewable energy, seed funding for research and development, and new technology such as electric vehicles.
This green stimulus bore fruit. Renewable energy expanded, and the cost of wind and solar power fell far faster than predicted, to the point where both forms of power are now competitive with fossil fuel generation, without the need for subsidy.
If that was possible from just 16% of stimulus spending, what could be done if the proportions were reversed?