Blackrock signals a change in investing
NEW YORK — A changing climate means dramatic risks for the world — and for investments too, the chief of the world’s largest investment manager said Tuesday.
To prepare for and protect against those risks, BlackRock CEO Laurence Fink said in his influential annual letter to CEOs that his firm, which manages roughly $7 trillion for investors, will make a series of moves putting climate change and sustainability at the center of its investing approach.
Among them, BlackRock will cut out investments in some coal producers from some of its portfolios, sharply increase the number of sustainability-focused funds that it offers, and vote against companies at shareholder meetings when they’re too slow in disclosing and mitigating their impact on the environment.
“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote in his letter, adding that he believes “we are on the edge of a fundamental reshaping of finance” because of it.
Fink predicted that the changes in how capital is deployed will come “more quickly than we see changes to the climate itself,” and “sooner than most anticipate.”
In fact, the shift is already underway.
Investors poured a net $20.6 billion into sustainable funds across the industry last year, nearly quadruple the record set a year earlier, according to Morningstar. Investors, particularly younger ones, increasingly say they want their money invested with an eye toward sustainability. The total dollars are still small relative to the entire industry — investors plugged a total of $413.9 billion into all taxable bond funds last year, while yanking $41.3 billion out of all U.S. stock funds — but the trend is clear and accelerating.
Fearful of losing out on those dollars — and the fees that they produce — investment companies are rushing to meet the surging demand.
BlackRock and other huge asset managers are generally behind smaller competitors when it comes to sustainability, said Danielle Fugere, president of shareholder-advocacy group As You Sow. BlackRock, State Street, Vanguard and others have been criticized for not doing more about the environment. Besides protests outside its Manhattan headquarters, BlackRock has also heard criticism from members of Congress who believe it could better address climate change.
Because of its size and reach, any shift in focus by BlackRock could alter the industry. It is a major shareholder in thousands of companies through its popular exchange-traded funds that track various indexes, as well as its funds run by stock-picking managers. But Fugere said Tuesday’s announcement is only a first step.
“The words are significant, and the words show leadership,” Fugere said. “But that’s not enough. We have to see on the ground action, and we need to see it quickly. There is no time. Australia is burning up. California is burning up.”
The wildfires in parts of Australia and California and other recent disasters have shown big institutional investors that climate change is just as much a threat to their returns in the near term as over the coming decades.
“The physical risks have become so immediately clear and stark,” said Amy Borrus, deputy director of the Council for Institutional Investors, whose members include pension funds, endowments and other U.S.-based asset owners investing more than $4 trillion.
“Many institutional investors will welcome these steps by BlackRock,” she said.