BlackRock boss promotes sustainability as new investment standard

Etats-Unis
On the 01/14/20 at 10:37AM

by

Adrien Paredes-Vanheule

Climate change and sustainability investing are the core themes of Larry Fink's 2020 letters to investors and firms' chief executive officers.

We are on the edge of a fundamental reshaping of finance, BlackRock's chief executive officer Larry Fink believes, as he wrote in its 2020 letter to CEOs that "the evidence on climate risk is compelling investors to reassess core assumptions about modern finance." Thus Fink warns CEOs of companies BlackRock is invested in that a significant reallocation of capital is underway and may occur very soon.

"In the short term, some of the work to mitigate climate risk could create more economic activity. Yet we are facing the ultimate long-term problem. 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 expounded.

In its letter to CEOs, BlackRock's chief requires from companies invested to disclose information in line with the guidelines of the Sustainability Accounting Standards Board (SASB) by year-end. Also it asks them to disclose climate-related risks in line with the recommendations set by the Task Force on Climate-related Financial Disclosures (TCFD) "This should include your plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realised, as expressed by the TCFD guidelines," Fink specifies. BlackRock itself has already made its SASB-aligned disclosure available on its website and will release a TCFD-aligned disclosure by the end of the year.

All active portfolios and advised strategies to be ESG-compliant by year-end

The chairman and CEO of the US manager, which had been recently scolded for not joining an institutional investor climate initiative, Climate Action 100+, before eventually joining it days later, has unveiled a series of measures aimed at reinforcing sustainability in its active portfolios and advised strategies. These 2020 good resolutions come up with a new mantra. "We believe that sustainability should be our new standard for investing," argued Fink in its 2020 letter to clients. 

This year will see BlackRock starting to provide sustainable versions of its flagship model portfolios, including the Target Allocation range of models, and of its asset allocation iShares. Fink also also announced that by the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated. BlackRock’s risk and quantitative analysis group (RQA) will be evaluating ESG risk during its regular monthly reviews with portfolio managers in order to provide oversight of portfolio managers’ consideration of ESG risk in their investment processes. The firm will launch a number of active sustainable and impact investing funds, including a global impact equity fund during first quarter of 2020.

Another measure expected to be achieved by mid-2020 is the dump - bonds and equities - of thermal coal producers whose revenues derive by more than 25% from thermal coal production within the US manager's active investment portfolios.

"As part of our process of evaluating sectors with high ESG risk, we will also closely scrutinise other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance. In addition, BlackRock’s alternatives business will make no future direct investments in companies that generate more than 25% of their revenues from thermal coal production," Fink outlined.

BlackRock's boss wrote to clients that the firm will work at trimming exposures in high-risk sectors in which heightened ESG risk exists."Today, we have no exposure through our $1.8 trillion in active AUM to public debt or equity in certain sectors with heightened ESG risk, such as controversial weapons systems manufacturers. We continue to evaluate, in both our public and private investment portfolios, high-risk sectors that are exposed to a reallocation of capital," he said.

BlackRock to reinforce sustainable ETF offering

On the passive side, BlackRock's ESG ETF offering will be doubled to 150 over the next few years, Fink promised. Moreover, the investment manager will come up with three ESG ETF suites in the US and EMEA: "one that enables clients to screen out certain sectors or companies that they do not want to invest in; one that enables clients to improve ESG scores meaningfully while still optimizing their ability to closely track market-cap weighted indexes; and one that enables clients to invest in companies with the highest ESG ratings and features our most extensive screens including one for fossil fuels." 

Passive, BlackRock will not be in terms of voting. CEO Fink said the investment manager will be increasingly disposed to vote against management and board directors if it assesses that companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them. Last year, BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies.

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