BlackRock Hopes to Lead the Sustainable Investment Charge Against Climate Risk

BlackRock CEO Larry Fink

The US firm, which has $7trn of assets under management, said it was introducing a number of initiatives meant to "put sustainability at the centre of our investment approach".

Fink's letter to BlackRock clients provides additional detail into what the shift in focus will entail, including the intention in 2020 to offer "sustainable versions of our flagship model portfolios". Excluding items, however, Wednesday's report revealed BlackRock's quarterly EPS at $8.34 instead. That helps us fund This Is Money, and keep it free to use. It also manages US$545bn of cash.

Excluding items, BlackRock earned US$8.34 per share, while analysts had expected US$7.69, according to IBES data from Refinitiv.

In the fourth quarter that ended on December 31, BlackRock generated $128.84 billion in revenue.

But it is the first time we've seen a commitment and a plan for making climate change and sustainability central to the way that BlackRock manages risk, designs products and portfolios, and engages with companies to improve disclosure and accelerate progress towards the goals of the Paris Agreement. Writing for WSJ, author Greg Ip leads off with an observation on how the Australian bushfires will negatively affect the Australian economy, he then notes that "c$3 limate has muscled to the top of business worries" and financial losses related to climate change may not be subject to successful hedging or recoupment through adaptation or insurance.

BlackRock is an investment firm worth about $7 trillion so you would think the company has a lot of room to make a statement. Investors added $263.6 billion, or 78.5% of the net flows into the firm's asset-management products previous year, to BlackRock's bond offerings.

Blackrock's approach contrasts with Norway's $1T sovereign wealth fund, which said past year it would stop investing in companies that mine more than 20M tons/year of thermal coal; Anglo, BHP and Glencore all exceed that requirement.

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"In the near future - and sooner than most anticipate - there will be a significant reallocation of capital", he added. This is also expected to impact credit spreads in other sectors, such as midstream oil and tobacco.

However, Emma Herd from the Investor Group on Climate Change (IGCC), which represents institutional investors with more than $2 trillion in funds under management, said the message sent to the global market should not be underestimated.

Other fund managers agree. "And with the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward". Coal stocks were mixed.

Not all are convinced of an immediate pricing correlation. Yet its thermal coal revenues accounted for less than 10% of the total, thanks to the contribution from its giant trading operations.

Less than 10 U.S. investment grade electricity utilities have more than 30% coal exposure and all of them have plans to add renewables and shut down coal plants to reduce their exposure below that limit, DeVries said.

Also this week, James Murdoch, son of global media mogul Rupert Murdoch (and a company board member), made global headlines when he criticized News Corporation's influential media outlets for promoting climate denial during Australia's recent fires.

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