The chief executive of global investor Blackrock says the company is reorienting its investment strategy, recognising ‘climate risk’ and focusing on portfolios that integrate sustainability criteria.
According to chief executive Larry Fink climate change has become a “defining factor” in companies’ long-term prospects and recognises “climate risk as investment risk”.
“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,” Fink stated in a later to chief executives of companies BlackRock invests in.
In a separate letter to clients, Fink said: “Resilient and well-constructed portfolios are essential to achieving long-term investment goals.
“Our investment conviction is that sustainability-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.”
Fink said BlackRock intends to make sustainable investing more accessible to all investors and lower the hurdles for those who want to act.
As part of this move the company will expand its range of active strategies focused on sustainability as an investment outcome, including funds focused on the global energy transition.
BlackRock currently manages $50bn in funds and other products that support the transition to a low-carbon economy, including a renewable power infrastructure business, which invests in the private markets in wind and solar power, green bond funds as well as other areas. “We will be expanding dedicated low-carbon transition-readiness strategies, offering investors exposure to the companies that are most effectively managing transition risk,” said Fink.
Going forward BlackRock will put in place measures to ensure that environmental, social and governmental (ESG) risk is considered by its portfolio managers with the “same rigour” against which traditional risk measures, such as credit and liquidity, are measured.
As part of continued evaluation, in both its public and private investment portfolios, of high-risk sectors that are exposed to a reallocation of capital, BlackRock is committed to exiting thermal coal producers.
In his letter, Fink stated: “Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.
“As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.”
BlackRock will also “closely scrutinize” other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance.
In addition, BlackRock’s alternatives business will make no future direct investments in companies that generate more than 25% of their revenues from thermal coal production.