BlackRock Hopes to Lead the Sustainable Investment Charge Against Climate Risk

BlackRock is an investment firm worth about $7 trillion so you would think the company has a lot of room to make a statement.  As such, the company has chosen to make climate change a major focus of their business strategy in the new year and, likely, for many more years to come. Furthermore, the largest asset management firm in the world hopes it sets a good example for others to have a similar, singular focus. 

In his annual letter to other CEOs BlackRock CEO Larry Fink explains, “Climate change has become a defining factor in companies’ long term prospects… awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

The company founder also goes on to say that investors must continuously recognize that climate risk is, in fact, investment risk, adding that climate change is nearly always the leading issue with which clients across the globe express their concern.  

He adds, “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.”

This strategy, then, involves leaving “high sustainability-related risk” investments like thermal coal producers. Instead, the company wants to make more sustainability “integral” investments a core strategy to building investment portfolios.

Fink also makes sure to warn, “Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital.” He argues that those companies and countries who do not champion transparency and demonstrate by cautiously but furtively respond to stakeholders will fail to attract effective investment opportunities. 

That said, it has also been noted that BlackRock has not explicitly said it will stop investing in fossil fuel companies, despite the evidence that these companies directly contribute to climate change.  And neither has BlackRock indicated it will put heavy pressure on agricultural companies where they are invested—like beef producers in Brazil—to adopt more sustainable practices.