Global asset manager BlackRock said climate risk is compelling investors to reassess core assumptions about finance and pledged to change its investment strategy as a result.
“Climate change has become a defining factor in companies’ long-term prospects,” chairman and chief executive officer Larry Fink said, adding that markets have been slower to react to climate risks than the wider public. “But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
Fink made the remarks in the company’s annual letter to CEOs.
“We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” Fink said.
The company said it would make sustainability integral to portfolio construction and risk management. It is planning to double the number of exchange-traded funds it offers that track companies that meet certain environmental targets and it is also exiting investments in thermal coal producers and other assets that present climate risks.
BlackRock also announced it was signing on to the Climate Action 100+ group that is seeking to pressure companies to reduce their carbon emissions.
“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself.”
The announcements come as business leaders get set to attend the World Economic Forum in Davos, Switzerland next week. This year’s theme is “Stakeholders for a Cohesive and Sustainable World.”
“Climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios,” Fink continued. “And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself.”
“In the near future — and sooner than most anticipate — there will be a significant reallocation of capital,” he added.
Fink, in his letter, said his career spanned numerous crises from the dot-com bubble to the inflation spikes of the 1970s to the global financial crisis, but climate change represented a different, longer-term risk.
“Even if only a fraction of the projected impacts are realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital,” he said.
BlackRock had assets under management of almost $7 trillion in the third quarter of 2019.