BlackRock, the world’s largest asset manager, will pressure companies to commit to zero net emissions by 2050 and increase the prospect of eliminating companies that do not do so with their actively managed funds.
In two letters sent to BlackRock chief executives and clients on Tuesday, Chief Executive Larry Fink said that a “tectonic shift” in the investment landscape was happening faster than he expected.
Investors are relocating capital to companies with sound environmental, social and governance practices, said Fink in his annual letter to business leaders. “There is no company whose business model is not profoundly affected by the transition to a zero net economy”. He wrote.
With nearly $ 8.7 trillion in assets under management, including more than $ 5 trillion in passive investment vehicles that track market indices, BlackRock is a major shareholder in most major companies around the world.
Climate Capital
Where climate change meets business, markets and politics. Explore FT coverage here
The asset manager will ask investee companies to disclose their plan to meet the goal of not emitting more carbon dioxide than they will remove from the atmosphere by 2050, said Fink.
In a separate letter to clients, BlackRock described risk management tools to help investors prepare their portfolios for a zero net world – as well as the steps they would take if companies were unable to manage this transition.
BlackRock said that companies’ lack of progress would lead it to “not only use our vote against management for our shares held by index portfolio, but we will also signal these holdings for potential exit in our discretionary active portfolios because we believe they would a risk to our clients’ returns ”.
Mr. Fink warned that “companies that are not preparing quickly will see their business and assessments suffer, as these same stakeholders will lose confidence that these companies can adapt their business models to the dramatic changes that are coming”.
In 2020, four-fifths “of a globally representative selection of sustainable indices outperformed their five parent benchmarks,” said Fink, suggesting that ESG considerations were already affecting stock prices.
“From automobiles to banks and oil and gas companies. . . companies with better ESG profiles are performing better than their peers, enjoying a ‘sustainability award’. ”
Last year, BlackRock’s iShares ESG Aware exchange-traded fund attracted $ 9.5 billion in tickets and ranked fifth among American funds that have obtained new assets, according to Morningstar.
BlackRock is not the only fund manager that presses companies to reduce emissions. A group of 30 of the world’s largest asset managers, including Fidelity, Legal & General Investment Management, Schroders, UBS Asset Management, M&G, Wellington Management and DWS announced in December that they were committed to cutting emissions linked to their portfolios to zero net in 2050.
The best way for an investment manager to pressure investee companies to adopt a net goal of zero is to invite companies to set “short, medium and long-term science-based goals for their own emission reduction path, commensurate with the needs of your own industry, ”said Eli Kasargod-Staub, co-founder of Majority Action, a campaign group.
Moral money
Moral Money is our new weekly newsletter covering sustainable business, finance and investments. Sign up here for breaking news and insightful analysis of this bubbling revolution.