The world’s largest asset manager is pushing companies to reveal how they will survive in a world of net greenhouse gas emissions.
“Because better disclosures about sustainability are in the interests of both companies and their own investors, I urge companies to go fast to issue them, rather than wait for regulators to impose them, “the CEO said on Tuesday. BlackRock’s Larry Fink in his annual letter to CEOs.
The corporate world is waking up to the fact that so-called ESG factors – environmental, social and governance measures – pose a financial risk, and companies that do not adapt will be left behind.
Indeed, Fink said in his letter that as investors shift their stakes to sustainability-focused companies, “the tectonic change we are seeing will accelerate even further.”
“More and more people understand that climate risk is investment risk … When finance really understands a problem, we take this future problem and present it. That’s what we saw in 2020 and what we see now,” Fink said Tuesday. CNBC’s Squawk Box.
“Flows, even in January, to sustainability funds are increasing, not decreasing, and this will continue in 2021,” he said.
ESG investments have become widespread during the growth of the bull market, leading many to see it as a pure phenomenon in the bull market. But in the wake of the sale of shares, as the coronavirus entered the markets in March, investors piled on funds focused on sustainability. Many of them outperformed their colleagues.
Last year, from January to November, investors in mutual funds and exchange-traded funds invested $ 288 billion globally in sustainable assets, an increase of almost 100% over the entire 2019, according to BlackRock.
“They [investors] they are also increasingly focused on the significant economic opportunity that the transition will create, as well as on how to execute it in a fair and just manner, ”Fink wrote in his letter.
“No number is higher than climate change on our customers’ priority lists,” he wrote. “He asks us about it almost every day.”
Amid rising ESG funding flows, some have said it has reached balloon-like territory and that ratings are starting to appear widespread for some of the most popular pure-play names related to the energy transition.
But Fink said that, as in any new trend, there will be a few winners and some losers. He compared the sector to technology companies over the past 20 years, noting that they have ultimately grown in their earnings.
This is not the first time Fink has sounded the alarm about the role of the corporate world in climate change.
In his 2020 letter, he said a financial reshuffle was under way and said the company was reviewing its investment strategy to put sustainability at the center.
His 2019 and 2018 letters also focused on the idea of stakeholder capitalism or that companies should seek a greater purpose beyond shareholder pockets.
Critics of ESG investments argue that it is difficult to register a company, given the subjective nature of some of the values, as well as the general lack of data disclosure.
In a bid for greater transparency, BlackRock said it is asking companies to specify how their business model will be compatible with a net zero economy.
In a separate letter to customers, BlackRock said it will help investors identify companies that drive taxes by using an “enhanced control model” in its actively managed portfolios. The company will also create a “focused universe” of farms that are particularly susceptible to climate risks.
With $ 8.68 billion in assets under management, BlackRock’s words and actions are important, and some argue that pushing the company toward a greener future is too small, too late.
Of course, its countless offers, including ETFs targeting the S&P 500, mean that it is difficult to unilaterally sell shares of companies that engage in activities that may not align with a client’s values.
“It is encouraging to see BlackRock finally willing to remove companies from active funds as a result of too slow a movement on the climate,” said Gaurav Madan, a forest and land activist at Friends of the Earth. The environmental group is one of the partners in BlackRock’s Big Problem, a global network of NGOs and financial advocates that pressures asset managers for change.
“This is a welcome change in BlackRock’s strategy,” Madan said. “But this threat alone is not enough at this stage of the pending crisis.”