National Post (National Edition)


CEO has driven change in past

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Nearly two dozen firms in BlackRock's Canadian portfolio have pledged to disclose and manage their climate-change risk, following a letter from CEO Larry Fink in which the world's largest asset manager committed to divest shares in firms that do not meet BlackRock's intensifyi­ng climate standards.

In his late January letter, Fink — whose New Yorkbased fund manages US$8.3 trillion in assets — called on the CEOs of BlackRock's portfolio companies to publish reports detailing how their businesses would operate in a net-zero-carbon economy by 2050. He also recommende­d companies disclose their climate-related financial risk using one or both of two globally recognized reporting standards: the Task Force on Climate-related Financial Disclosure­s (TCFD) and the Sustainabi­lity Accounting Standards Board (SASB).

The Logic contacted 60 of BlackRock's top Canadian portfolio companies, including Shopify, Loblaw, Enbridge and Sun Life, to ask if they would comply with the fund manager's stringent emissions targets and disclosure guidelines. Twenty-six of the 60 firms responded. While 22 companies said they disclosed their climate risk using the TCFD or SASB, just three told The Logic they have set net-zero emissions targets that align with BlackRock's recommenda­tions.

“Avoiding the worst impacts of the climate crisis requires us to reach net-zero emissions by 2050. There is a significan­t financial risk in investing in companies that don't have a plan for reaching that target, as they are likely to be unprepared for new climate regulation­s and rapid market shifts that can disrupt their business models,” said Patrick DeRochie, a pension-engagement manager at Shift, a climate risk-consulting firm.

In his most urgent call to action on climate change to date, Fink said his firm was willing to divest shares in companies that don't meet its Heightened Scrutiny Model. That means BlackRock may sell shares in companies that have high carbon intensity, are not prepared for a transition to net-zero emissions and/ or aren't engaging with the firm on their climate risk.

“Where we do not see progress in this area, and in particular where we see a lack of alignment combined with a lack of engagement, we will not only use our vote against management for our index portfolio-held shares, we will also flag these holdings for potential exit in our discretion­ary active portfolios because we believe they would present a risk to our clients' returns,” reads the letter.

Fink's annual missive has driven industry-wide change in the past. The executive's 2018 letter urged business leaders to focus not just on making profits, but on contributi­ng to society, as well. The following year, the 181 members of the Business Roundtable — including Jamie Dimon of JPMorgan Chase, Tim Cook of Apple and Jeff Bezos of Amazon — signed a letter disavowing the notion of shareholde­r primacy in favour of “a fundamenta­l commitment to all of our stakeholde­rs.” Following BlackRock's January 2020 letter, in which Fink promised to vote against management at carbon-heavy firms that aren't making environmen­tal progress, several institutio­nal investors in Canada told The Logic they had planned to take further action on climate change.

“We welcome Larry Fink's letter and call to action. Slowing the climate crisis is a global priority and we know we have an important role to play,” said Sun Life spokespers­on Rajani Kamath. The financial-services company has not set a net-zero target, though Kamath said it plans to publish its first TCFD disclosure­s later this month and a sustainabi­lity report in March, “which provides greater detail on our commitment­s.”

A spokespers­on for Shopify, whose CEO Tobi Lütke has been vocal about climate change, told The Logic the firm already discloses its climate-change risk through the Global Reporting Initiative standard, but that it will consider following the TCFD and SASB, per Fink's recommenda­tion. The Ottawa-based e-commerce firm has discussed plans to eventually achieve net-zero emissions, but has yet to set a target date. As part of its carbon-reduction strategy, the company launched a sustainabi­lity fund in September 2019 to support companies fighting climate change; it's contribute­d $5 million to the fund to date.

Loblaw said it reported its climate risk using the SASB for the first time last year, but hasn't set a target to reach net-zero emissions by 2050. “In our 2019 CSR (corporate social responsibi­lity) report, we disclosed a reduction in carbon emissions across our corporate operations by 29.7 per cent and announced a new target to reduce emissions by 50 per cent by 2030,” said spokespers­on Aly Vitunski.

Among Canada's six largest banks, TD is the only one that's committed to net-zero emissions by 2050 across its entire organizati­on. RBC has a target to reduce emissions by 70 per cent by 2025 for its operations, and CIBC has pledged to be carbon neutral in its operations by 2024. Scotiabank and National Bank of Canada both aim to cut their carbon emissions by 25 per cent by 2025, and BMO has been carbon neutral since 2010. All six banks report their climate risk using the TCFD.

While BlackRock's letters are particular­ly influentia­l among CEOs and money managers, there's already a growing list of global asset owners and managers that have implemente­d screening and divestment policies linked to climate change. Large public pensions, including the New York State Pension Fund, Norway's Government Pension Fund Global and the U.K.'s NEST pensions, “are normalizin­g the practice of screening and reviewing existing fossil-fuel holdings for divestment on fixed timelines,” said DeRochie, who said the trend now is “creating significan­t pressure on their peers, including Canadian pensions.”

BlackRock holds many of its Canadian portfolio companies in passive funds and cannot directly divest those assets if they fail to comply with the fund's climate standards.

“Passive management is a major barrier for investors in managing climate risks,” said DeRochie.

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