Stockholm (NordSIP) – In his annual letters to CEOs of investee companies, BlackRock’s CEO Larry Fink took one further step in support of climate change mitigation by endorsing the rising global commitment to net-zero CO2 emissions by 2050.
“The world is moving to net-zero, and BlackRock believes that our clients are best served by being at the forefront of that transition. We are carbon neutral today in our own operations and are committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner,” Fink told the CEOs of BlackRock investee companies. “No company can easily plan over thirty years, but we believe all companies – including BlackRock – must begin to address the transition to net-zero today. We are taking a number of steps to help investors prepare their portfolios for a net-zero world, including capturing opportunities created by the net-zero transition.”
Did Biden Tip the Scales?
The letter described the continued popularity and the performance of sustainable investments in 2020 as a ‘tectonic shift’. “From January to November 2020, investors in mutual funds and ETFs globally invested $288 billion in sustainable products, a 96% increase over the whole of 2019. (…) During 2020, 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks,” BlackRock told its clients.
At the same time, the CEO also emphasised Chinese, European, Japanese and Korean commitments to net-zero emissions as a motivation. However, it seemed that the election of Joe Biden as President of the USA tipped the scales in favour of BlackRock’s endorsement of net-zero emissions, in a possible sign of things to come. “With the U.S. commitment last week to rejoin the Paris Agreement, 127 governments – responsible for more than 60% of global emissions – are considering or already implementing commitments to net-zero. Momentum continues to build, and in 2021 it will accelerate – with dramatic implications for the global economy,” Fink added.
Disclosures and Updates
The dominant feature of BlackRock’s efforts to push its investee companies towards net-zero emissions is a focus on disclosures. To help drive companies in this direction, the asset manager will focus on three key actions during 2021: measurement and transparency, investment management and stewardship.
BlackRock is committing to publishing a temperature alignment metric for all public equity and bond funds as well as the share of assets under management (AUM) that are currently aligned with net-zero emission. Furthermore, the asset manager will also work with index providers to help assess their alignment with the Paris Agreement global warming goals. To further enhance the transparency of its journey towards net-zero emissions, the asset manager also decided it will announce an interim target on the share of net-zero aligned AUM by 2030.
BlackRock is also complementing its existing Aladdin risk management technology with new climate data, risk measurement, and implementation capabilities to internalise the new net-zero investment criteria into investment management practices. According to the asset manager, “Aladdin Climate calculates and surfaces the climate risk in portfolios, so investors can take action to reduce their exposure.” In parallel, the asset manager will also update its capital market assumptions to integrate climate considerations. Thus equipped, the asset manager will then develop a “Heightened Scrutiny Model” to manage exposures in active portfolios to assets displaying high climate risks.
Investment Stewardship
“Where we do not see progress in this area, and in particular where we see a lack of alignment combined with a lack of engagement, we will not only use our vote against management for our index portfolio-held shares, we will also flag these holdings for potential exit in our discretionary active portfolios because we believe they would present a risk to our clients’ returns.”
The announcement will come as good news for sustainable investors concerned with BlackRock’s continuous underperformance in engagement rankings. “We see voting on shareholder proposals playing an increasingly important role in our stewardship efforts around sustainability. Accordingly, where we agree with the intent of a shareholder proposal addressing a material business risk (such as climate-related risk) and if we determine that management could do better in managing and disclosing that risk, we will support the proposal. We may also support a proposal if management is on track, but we believe that voting in favour might accelerate their progress.”
What BlackRock is Not Promising
Despite BlackRock’s endorsement of the 2050 net-zero goal for its investee companies, the world’s largest asset manager never actually commits itself to own a net-zero portfolio of investments by that date. Its commitment is to support the effort. This is not to say that BlackRock won’t actually manage to reach such a goal. Surely, if it succeeds in pushing all its investee companies to achieve net-zero emissions, its own balance sheet will by definition be carbon neutral. However, that’s not a hard-goal BlackRock is setting for itself just now.
Image courtesy of BlackRock
