BlackRock oversees nearly $7 trillion, and in 2020 its chief executive gave an entire annual letter to one subject: climate. Larry Fink’s letter to CEOs, titled “A Fundamental Reshaping of Finance,” warned that companies which fail to count climate risk are putting billions of dollars of shareholder value in danger.
Fink set climate apart from the financial shocks of earlier decades. “Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis,” he wrote. He added that “companies, investors, and governments must prepare for a significant reallocation of capital.”
What BlackRock said it would do
The letter came with a set of announcements. BlackRock said it would “place sustainability at the center of our investment approach.” That means new investment products that screen out fossil fuels, an exit from thermal coal holdings and more openness about how the firm carries out its stewardship work.
It also told the companies it invests in to disclose climate risk. Fink asked them to report in line with the recommendations of the Task Force on Climate Related Financial Disclosures, known as TCFD, and to include a plan for a world that holds warming below two degrees, as the Paris Agreement aims to do. BlackRock said it would publish its own TCFD-aligned disclosure by the end of 2020.
On voting, the letter was blunter. “We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures,” Fink wrote.
The record under scrutiny
Manifest Climate, which works at the intersection of climate and finance, welcomed the letter but pointed to the gaps. The record shows BlackRock voted for climate-related shareholder proposals only 10 per cent of the time in the 2018 proxy season. A study by Ceres ranked it 43rd among 48 large fund companies on that measure. Fink’s letter says this will change, though it does not say by how much.
The coal pledge has limits as well. BlackRock said it would divest from companies that earn more than 25 percent of their revenue from thermal coal production. That applies only to its actively managed funds. Passive funds, such as index funds, make up most of its assets and are not covered. Manifest Climate also noted that BlackRock was estimated to have $87.3 billion invested in fossil fuels.
Fink himself did not promise a quick break with oil and gas. “Under any scenario, the energy transition will still take decades,” he wrote, adding that the technology to replace many essential uses of hydrocarbons at reasonable cost does not yet exist.
Past letters invite caution too. His 2018 letter urged companies to make “a positive contribution to society,” and Manifest Climate asked whether BlackRock’s investments shifted as a result. The week before the 2020 letter, the firm joined Climate Action 100+, an investor initiative pressing the largest emitters to cut emissions and issue TCFD-aligned reports.
State Street Global Advisors, which manages $3.1 trillion, had already laid out a phased plan to vote against board members at big companies with low ESG ratings that do not say how they will improve. Bank of England Governor Mark Carney had earlier warned of stranded assets from sudden market moves tied to climate. Financial commentator Jim Cramer, for his part, said fossil fuels had entered a “death knell phase.”
Manifest Climate’s own verdict was that the letter alone may not matter much, but that a voice as large as BlackRock’s carries weight at a time when governments are being pushed to do more.
