BlackRock’s Larry Fink: A huge capital move is underway

In an annual letter to CEOs published Tuesday, BlackRock chief executive Larry Fink said: “Climate change has become a defining factor in companies’ long-term prospects. BlackRock Inc. will ditch investments with high sustainability-related risk as climate concerns drive a sweeping change in the way the world’s largest asset manager invests its $7 trillion in assets.

Fink is tackling the subject as asset managers come under greater pressure on sustainability and climate change. BlackRock has been moving toward a more public stance on climate, as activists and non-profit groups increasingly scrutinize the firm’s behavior and voting record around environmental issues.  Fink’s letter, which mentions ‘climate’ 29 times, builds on previous missives advising corporate leaders on how to orient their businesses for the long term. In previous years he’s underscored the theme that profit and social purpose are inextricably linked. People are looking to corporate executives to step in and offer fixes to social problems that governments are failing to solve, Fink wrote in last year’s letter.

In over 40 years of his career in finance, Fink explained, he has witnessed a number of financial crises and challenges—the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis. Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. “Climate change is different,” he wrote. “Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”

Activists have been calling on BlackRock to do more around the climate crisis. Groups including Amazon Watch, the Sunrise Project, and coalitions of youth activists and parents have all targeted the firm, asking for more action around the global crisis of climate change. Former U.S. Vice President Al Gore attacked big index fund firms recently too.
More and more customers are trying to reallocate their investments in sustainable strategies, explains Fink. “If ten percent of global investors did – or even five percent – we would attend massive capital shifts». It’s this one dynamics will accelerate as the next generation takes the lead, in politics and in business. “Young people have been at the forefront of asking institutions – including BlackRock – to face the new challenges associated with climate change. They ask companies and governments for transparency and action. And while thousands of billions of dollars will gradually turn to millennials in the next decades when they become CEOs, that is, politicians and heads of state, will further reshape the global approach to sustainability “.

In the era of climate change and the consequent movement of capital, what role should asset management play? The key word, according to Fink, is transparency. «All investors, together with regulatory authorities, insurers and the public, must have a clearer picture of how companies handle sustainability issues», Explains the CEO of the American giant. «BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from business practices to data privacy to business ethics, “continues the US financier. But for the assessment and communication of climate-related risks, as well as the related governance problems that are essential for managing them, Fink also defines the framework provided by Climate Information Task Force (TCFD), founded among others by BlackRock itself, although it recognizes that “meeting these standards requires time, analysis and significant efforts”.