‘Substantial shift’ seen as BlackRock embraces climate risk

BlackRock today announced a suite of initiatives intended to place sustainability at the centre of its investment approach, with one large UK pension investor hailing a “substantial shift and commitment to transparency”.

The commitments were set out and contextualised in a letter to clients and CEO Larry Fink’s 2020 letter to company chief executives.

According to Fink, the investment risks presented by climate change are set to accelerate a significant reallocation of capital, which will in turn have a profound impact on the pricing of risk and assets around the world.

“[B]ecause capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself,” wrote Fink.

“Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,” he added. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

The steps outlined by BlackRock include selling holdings in its active management strategies that present high sustainability-related risk, such as thermal coal producers; working with index providers to grow and improve the universe of sustainable indices; and “enhancing engagement, voting and transparency in stewardship”.

The latter included BlackRock joining Climate Action 100+, a move announced last week, but the asset manager also said it would:

• disclose its position promptly on key high-profile shareholder votes, along with an explanation;
• include in its stewardship annual report the topics it discussed during each engagement with a company; and
• be “increasingly disposed” to vote against management and board directors when companies were not meeting expectations regarding sustainability-related disclosures and “the business practices and plans underlying them”.

Regarding disclosures, the asset manager named the Sustainability Accounting Standards Board (SASB) framework alongside that of the Task Force on Climate-related Financial Disclosures (TCFD).

“While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics,” said Fink.

He said disclosure must be for more than “transparency’s sake”, namely ”a means to achieving a more sustainable and inclusive capitalism”.

NGOs have said the asset manager must press for more than disclosure from carbon-intensive companies.

The moves outlined by BlackRock in its letter were mainly related to sustainability considerations in terms of their increasing impact on investment returns, but the asset manager also said it would be expanding its range of active strategies focussed on sustainability as an investment outcome, including funds focussed on the global energy transition and impact investing funds “that seek to promote positive externalities or limit negative ones”.

Thumbs up from UK pension investors

Senior investment officials at Brunel Pension Partnership, an asset pool for UK local authority pension funds with a strong responsible ownership stance, had positive words for BlackRock’s announcements.

“The substantial shift and commitment to improved transparency will enable us, and clients, to hold them to account and deliver on these most welcome commitments”

Mark Mansley, CIO of Brunel Pension Partnership

Mark Mansley, its CIO, said: “We are strongly supportive of Larry Fink’s letter as it acknowledges the need for BlackRock to align and assist their clients in managing climate change, the most defining factor – not only for companies – but the planet.

“The substantial shift and commitment to improved transparency will enable us, and clients, to hold them to account and deliver on these most welcome commitments.”

Mansley’s colleague Faith Ward, chief responsible investment officer, welcomed the asset manager’s backing of the TCFD and SASB disclosure frameworks.

“As TCFD signatories and active members of SASB’s investor advisory group, we are delighted by BlackRock’s clear unambiguous commitment to use the frameworks for their own reporting and encourage others to do likewise.

“Consistent, comparable, meaningful disclosure is essential for the financial industry if it is to play its role in responding to the challenges of climate change and limiting warming in line with the Paris Agreement.”

Border to Coast, another UK local authority pension fund asset pool, also welcomed BlackRock’s announcement.

“True engagement on this topic is fundamental to the approach we, and our partners, take,” said Rachel Elwell, its CEO.

PGGM, asset manager for €238bn Dutch healthcare pension fund PFZW, declined to comment directly on BlackRock’s policy, but a spokesman said it took notice of what its peers did and that BlackRock was an important player in the investment world.

“What matters most is that investors, big and small, join forces and engage with companies and governments to develop policies and initiatives that contribute to a more sustainable future.”

PGGM spokesman

He added: “What matters most is that investors, big and small, join forces and engage with companies and governments to develop policies and initiatives that contribute to a more sustainable future.

“The financial sector as a whole cannot create a sustainable world, but if we can make the real economy more sustainable, the assets of institutional investors should reflect this.”