The world’s largest asset manager, BlackRock, has threatened to pull all investments in big companies unless they demonstrate a path to zero emissions.
In his annual letter to investors and companies, chairman and CEO of BlackRock Larry Fink said the COVID-19 pandemic has accelerated a “tectonic shift” toward renewable energies and zero-pollution strategies.
“I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type,” Fink said.
“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
Now, BlackRock is calling on the CEOs of the companies it invests in to get with the program, or face expulsion.
Fink said companies with better environmental, social and governance (ESG) profiles outperformed their peers, while globally, investors have redirected funds towards sustainable companies.
Over 2020, 81 per cent of sustainable indexes outperformed their broader benchmarks, and companies are also using sustainability to attract and maintain consumers.
“Companies that do not earn this trust will find it harder and harder to attract customers and talent, especially as young people increasingly expect companies to reflect their values,” Fink warned.
“The more your company can show its purpose in delivering value to its customers, its employees, and its communities, the better able you will be to compete and deliver long-term, durable profits for shareholders.”
To that end, Fink called on the companies it invests in to disclose how they plan to have net-zero emissions by 2050.
As part of its strategy, BlackRock will publish temperature alignment metrics where sufficient data is available and add increased scrutiny to its active portfolios.
That will act as a framework for managing holdings which pose a significant climate risk, and flag holdings for potential exits.
BlackRock’s pledge brings it in line with commitments made by more than 100 countries and rival managers including UBS Asset Management and Legal and General Investment Management.
It comes after BlackRock promised in 2020 to divest from companies that derive more than 25 per cent of their revenues from thermal coal, with Fink’s latest letter heralding a tougher stance on gas and oil extractors.
However, its new “heightened scrutiny” strategy will only apply to its actively managed funds. The majority of money BlackRock manages is invested in passive funds which track certain markets and indexes, meaning it will still have a significant exposure to the world’s coal-producing companies.