BlackRock’s CEO Larry Fink urges companies to disclose net-zero plans
In his letter, Fink underlined that companies that have a clear plan to address the transition to net zero will distinguish themselves with their stakeholders, while firms that do not prepare will see their business and valuations suffer.
Mincing no words, Fink wrote, “Given how central the energy transition will be to every company’s growth prospects, we are asking companies to disclose a plan for how their business model will be compatible with a net zero economy – that is, one where global warming is limited to well below 2ºC, consistent with a global aspiration of net zero greenhouse gas emissions by 2050. We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.” Fink strongly supported moving to a single global standard, which will enable investors to make more informed decisions about how to achieve durable long-term returns.
BlackRock also laid down its key actions for 2021 for its net zero commitments. The world’s largest asset manager will publish a temperature alignment metric for all its public equity and bond funds, for any markets with sufficiently reliable data. It will also publish the proportion of assets under management that are currently aligned to net-zero, announce an interim target on the proportion of assets under management that will be aligned to net zero in 2030 (for markets with reliable data). Through its Aladdin Climate platform, it will help investors manage and meet their climate objectives by tracking investment portfolios’ trajectories toward net zero, and helping to catalyse increasingly robust and standardized climate data and metrics to better serve the industry.
The American asset manager said that it will integrate climate considerations into its capital market assumptions. Additionally, it would also implement a heightened scrutiny model to manage exposures in active portfolios. As a part of this, it would use a full set of risk management tools to establish a focus universe of holdings that present a significant climate-related risk due to high carbon intensity, insufficient preparation for net zero transition and low reception to stewardship engagement. If there is no progress, BlackRock stated that it would not only vote against management for its index portfolio-held shares but also flag these holdings for potential exit from discretionary active portfolios, as it presents a risk to clients’ returns.
On the stewardship front, BlackRock stated that it would focus on a universe of 440 carbon-intensive companies, representing 60% of the global Scope 1 and 2 emissions of the companies, in which its clients invest it. Out of these, BlackRock voted against 64 directors and 69 companies and put 191 companies “on watch”. These companies risk votes against directors in 2021, unless they demonstrate significant progress on the management and reporting of climate-related risk, including transition plans to a net zero economy. The US asset manager will expand this universe to include 1,000 carbon-intensive companies representing more than 90% of the global Scope 1 and 2 emissions. BlackRock will also report Scope 1, 2 and 3 emissions for its own corporate operations. Voting on shareholder proposals will play an important role in its stewardship efforts. In the second half of 2020, BlackRock supported 54% of all environmental and social proposals.