Climate change is the foundation of what may be a fundamental reshaping of finance, BlackRock Chairman and CEO Larry Fink wrote in an open letter to CEOs released Tuesday that announced the asset manager’s plans to place sustainability at the center of its investment approach.
BlackRock, which has close to $7 trillion under its management, is one of the world’s most powerful institutional investors. Fink said investors increasingly are recognizing that climate risk creates investment risk.
As a result, he announced BlackRock’s plans to:
- Exit investments that present high sustainability-related risks, such as thermal coal producers.
- Launch new investment products that screen fossil fuels.
- Strengthen its commitment to sustainability and transparency in its investment stewardship activities.
“We are facing the ultimate long-term problem,” Fink wrote. “We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change.”
Fink called for improved reporting and disclosure on companies’ sustainability practices, saying that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards and the Task Force on Climate-related Financial Disclosures (TCFD) is a valuable framework for evaluating and reporting climate-related risks and associated governance issues.
BlackRock this year will ask the companies in which it invests to:
- Publish a disclosure in line with industry-specific SASB guidelines by year end or disclose a similar set of data.
- Disclose climate-related risks in line with the TCFD’s recommendations.
“We will use these disclosures and our engagements to ascertain whether companies are properly managing and overseeing these risks within their business and adequately planning for the future,” Fink wrote. “In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.”
BlackRock will be increasingly disposed to vote against management and board directors when they are not making enough progress on sustainability-related disclosures and initiatives, according to Fink.
“Disclosure should be a means to achieving a more sustainable and inclusive capitalism,” Fink wrote. “Companies must be deliberate and committed to embracing purpose and serving all stakeholders — your shareholders, customers, employees, and the communities where you operate. In doing so, your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole.”
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.