Blackrock Inc has $6.28trillion in assets under management.
So when the founder and CEO, Larry Fink, announces a redirection of their investment strategy, people sit up and take notice.
For the last number of years the company has been talking about being more corporately responsible and using its influence to have a positive impact on the environment.
In his influential annual letter to chief executives, Mr Fink said his firm would now avoid investments in companies that “present a high sustainability-related risk.”
And he pledged to stop working with companies who are not taking active steps to reduce their energy consumption and tackle climate change.
Here are the key points from his public statement.
Companies, investors, and governments must prepare for a significant reallocation of capital as investors move away from environmentally damaging companies and practices.
Climate change is one of the top issues for investors as they grapple with how to modify their portfolios and reduce their risk. This means that sustainability is now the new standard for investment.
Every aspect of business and society is impacted by climate change. This ranges from the cost of municipal bonds which raise funds for infrastructural projects, to whether 30 year mortgages will continue to be available, to the cost of food as harvests are impacted by heat and drought. This means that all investments need to be reassessed and futureproofed.
Blackrock has undertaken a number of initiatives to place sustainability at the center of their investment approach which includes exiting investments that present a high sustainability-related risk, such as thermal coal producers.
Blackrock is launching new investment products which screens out fossil fuels and strengthens their commitment to sustainability and transparency in their investment stewardship activities.
Climate related reporting will be increased and strengthened. They want companies to include their plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized. Without this information Blackrock will automatically assess that companies are not tackling climate change and will not engage with them.
They will take action against directors who are not making material steps to tackle climate change. This means voting against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.
Every investment process will have an ESG assessment built in which will have a direct impact on the investment decision. Investors will be given the tools to screen out all companies which have low ESG targets or results and similarly allow them to screen in companies which have high standards.
In recent years, many companies and investors have committed to focusing on the environmental impact of business, but to date none of the largest investors have been willing to make it a central component of their investment strategy.
In that context, Mr. Fink’s move is a watershed.
The big question is, will others now follow?