BlackRock CEO Larry Fink: Climate Crisis Will Reshape Finance

In his influential annual letter to chief executives, Mr. Fink said his firm would avoid investments in companies that “present a high sustainability-related risk.”

Andrew Ross Sorkin / The New York Times

 (January 14, 2020) — Laurence D. Fink, the founder and chief executive of BlackRock, announced Tuesday that his firm would make investment decisions with environmental sustainability as a core goal.

BlackRock is the world’s largest asset manager with nearly $7 trillion in investments, and this move will fundamentally shift its investing policy — and could reshape how corporate America does business and put pressure on other large money managers to follow suit.

Mr. Fink’s annual letter to the chief executives of the world’s largest companies is closely watched, and in the 2020 edition he said BlackRock would begin to exit certain investments that “present a high sustainability-related risk,” such as those in coal producers. His intent is to encourage every company, not just energy firms, to rethink their carbon footprints.

“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” Mr. Fink wrote in the letter, which was obtained by The New York Times. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

The firm, he wrote, would also introduce new funds that shun fossil fuel-oriented stocks, move more aggressively to vote against management teams that are not making progress on sustainability, and press companies to disclose plans “for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized.”

Mr. Fink has not always been the first to address social issues, but his annual letter — such as his dictum two years ago that companies needed to have a purpose beyond profits — has the influence to change the conversations inside boardrooms around the globe.

And now Mr. Fink is sounding an alarm on a crisis that he believes is the most profound in his 40 years in finance. “Even if only a fraction of the science is right today, this is a much more structural, long-term crisis,” he wrote.

A longtime Democrat, Mr. Fink insisted in an interview that the decision was strictly business. “We are fiduciaries,” he said. “Politics isn’t part of this.”

BlackRock itself has come under criticism from both industry and environmental groups for being behind on pushing these issues. Just last month, a British hedge fund manager, Christopher Hohn, said that it was “appalling” of BlackRock not to require companies to disclose their sustainability efforts, and that the firm’s previous efforts had been “full of greenwash.”

Climate activists staged several protests outside BlackRock’s offices last year, and Mr. Fink himself has received letters from members of Congress urging more action on climate-related investing. According to Ceres and FundVotes, a unit of Morningstar, BlackRock had among the worst voting records on climate issues.

In recent years, many companies and investors have committed to focusing on the environmental impact of business, but none of the largest investors in the country have been willing to make it a central component of their investment strategy.

In that context, Mr. Fink’s move is a watershed — one that could spur a national conversation among financiers and policymakers. However, it’s also possible that some of the most ardent climate activists will see it as falling short. 

Even so, the new approach may put pressure on the other large money managers and financial firms in the United States — Vanguard, T. Rowe Price and JPMorgan Chase, among them — to articulate more ambitious strategies around sustainability.

When 631 investors from around the world, representing some $37 trillion in assets, signed a letter last month calling on governments to step up their efforts against climate change, the biggest American firms were conspicuously absent.

BlackRock’s decision may give CEOs license to change their own companies’ strategy and focus more on sustainability, even if doing so cuts into short-term profits. Such a shift could also provide cover for banks and other financial institutions that finance carbon-emitting businesses to change their own policies.

Had Mr. Fink moved a decade ago to pull BlackRock’s funds out of companies that contribute to climate change, his clients would have been well served. In the past 10 years, through Friday, companies in the S&P 500 energy sector had gained just 2 percent in total. In the same period, the broader S&P 500 nearly tripled.

In an interview, Mr. Fink said the decision developed from conversations with “business leaders and how they’re thinking about it, talking to different scientists, reading different research.” Mr. Fink asked BlackRock to research the economic impacts of climate change; it found that they are already appearing in a meaningful way in the form of higher insurance premiums, for fires and floods, and expects cities to have to pay more for their bonds.

Wherever he goes, he said, he is bombarded with climate questions from investors, often to the exclusion of issues that until recently were once considered more important. “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” he wrote in his letter.

He wrote that he anticipated a major shift, much sooner than many might imagine, in the way money will be allocated.

“This dynamic will accelerate as the next generation takes the helm of government and business,” he wrote. “As trillions of dollars shift to millennials over the next few decades, as they become CEOs and CIOs, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.”

Note: This is big stuff (assuming they follow through . . . and we’ll be all over that) BUT this does not re-arrange the defaults on their passive index funds to stop $$$ flows into fossil fuels. It’s very clear they are feeling the heat. This is a result of activist pressure!

BlackRock Responds to Demands for Stronger Climate Action with Bold New Commitments: The company still remains the largest investor in coal, oil, gas, and deforestation

Sierra Club and the Sunrise Project

(January 14, 2020) — Today, after more than a year of increasing pressure from climate activists, investors, legislators, and thought leaders, BlackRock CEO Larry Fink, in his highly-anticipated annual letter, announced a sweeping new set of policies which aim to put climate change and sustainability at the center of BlackRock’s business model. BlackRock is the world’s largest asset manager with almost $7 trillion in assets under management. 

In response to today’s announcement Diana Best, Senior Strategist for the Sunrise Project which is a core partner of the BlackRock’s Big Problem campaign, said: “BlackRock’s new initiatives match the size of the crisis we’re seeing in 2020 and are the direct result of an outpouring of pressure from the global climate movement. BlackRock beginning its shift of capital out of fossil fuels, including today’s divestment of coal in its actively managed funds, is a fantastic start and instantly raises the bar for competitors such as Vanguard and State Street Global Advisors. We will be looking for additional leadership from the company in, as Larry Fink put it, ‘fundamentally reshaping finance to deal with climate change,’ including additional shifts of capital out of fossil fuels.”

As one of the largest shareholders in most companies, an important litmus test for BlackRock’s new climate leadership will be how it votes in the 2020 shareholder season on the many climate resolutions that have already been filed, including at other major financial institutions. 

Jeanne Martin, campaign manager at ShareAction, says: “BlackRock’s coal divestment decision is yet another significant blow to the already dying market, yet major banks like Barclays continue to prop up coal-heavy companies.

If BlackRock is serious about its commitment to phase out thermal coal, it should use its voting rights to get major coal financiers to do the same. Larry Fink talks a lot about companies’ purpose, but there are questions left unanswered about what BlackRock’s own purpose is, and how its stewardship delivers the social, environmental, and financial performance that its clients are looking for.”

A 2019 report from Majority Action showcased BlackRock’s abysmal voting record and lack of leadership when it found that if BlackRock and Vanguard had voted in favor, 16 critical climate resolutions would have passed at US companies in 2019. 

Last week, a coalition of leading climate, youth, and Indigenous organizations launched a major new mobilization, Stop the Money Pipeline, that will pressure banks, insurance companies, and asset managers including BlackRock to stop financing fossil fuels and deforestation and start respecting human rights and Indigenous sovereignty. 

Sierra Club campaign representative Ben Cushing said: “The financial giants propping up the industries driving us towards climate disaster can no longer escape public scrutiny. As the biggest financial institution in the world, BlackRock’s announcement today is a major step in the right direction and a testament to the power of public pressure calling for climate action. But BlackRock will continue to be the world’s largest investor in coal, oil, and gas. It is time to turn off the money pipeline to dirty fossil fuels for good. BlackRock should expand on its commitments and other financial institutions should follow suit.” 

To read the Sierra Club’s full Campaign’s Statement click here.

A full analysis from the BlackRock’s Big Problem network of today’s announcement will appear on LarrysLetter.com later today. 

For more information or interviews:

Myriam Fallon, 708.546.9001, myriam@sunriseproject.net

Gabby Brown, 914-261-4626, gabby.brown@sierraclub.org 

Photos from past protests against BlackRock can be found here: https://drive.google.com/drive/folders/1_nJCcXL7iuih47CV8_bZUOes59S4UIhV

Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes.