In a move pointing to the increasingly mainstream prevalence of environmental factor investing, the world’s largest asset manager, BlackRock, has announced that it will include ESG criteria in all investment decisions going forward.
In a public communication to clients and CEOs released on the firm’s website today, CEO Lawrence Fink stated that by the end of 2020, all of BlackRock’s active portfolios and advisory strategies will be “ESG integrated.” This means that portfolio managers will now be held accountable for managing ESG risk exposures and for documenting how these exposures impacted investment decisions.
BlackRock already manages $50 billion in investments tied to the low-carbon energy transition. Today’s landmark announcement suggests that it is expecting an even larger global shift in allocation decisions.
“In the near future – and sooner than most anticipate – there will be a significant reallocation of capital [due to climate concerns],” Fink said.
His remarks suggested that the capital shifts due to climate change could unfold more rapidly than the effects of anthropogenic climate change itself.
BlackRock said it will undertake a firm-wide reduction of exposures to certain high-ESG risk sectors. This will include a complete exit from debt and equity investment in companies that generate more than 25% of revenues from thermal coal production, due to the inherently carbon-intensive nature of the coal business, its diminishing economic viability, and its increasing regulatory scrutiny.
The company will also double the number of ESG-focused ETFs it offers to 150 such funds over the next few years. These passive funds will be categorized across three “suites” in the U.S. and EMEA markets: one that will enable clients to exclude specific sectors or companies, another providing enhanced ESG-scores while still tracking market-cap weighted indexes, and a third option featuring the highest ESG-rated companies and more extensive screening capabilities.
BlackRock also plans to fold new ESG scenario modeling capabilities into Aladdin, its flagship investment technology platform. Aladdin is used by more than 200 institutional clients around the world, and supports more than $18 trillion in investments.
The great guns push into ESG-informed investing follows a number of high-profile environmental initiatives from BlackRock in 2019. These include massive investments in global renewable power infrastructure (GRP), the Liquid Environmentally Aware Fund(LEAF) money-market fund launched early last year, and actively managed funds that offer exposure to circular economy strategies.
Climate Action 100+
The company confirmed that it recently joined Climate Action 100+, the investment group that works with companies to improve climate disclosures and align business practices with the goals of the Paris Agreement.
As part of a key change to its transparency and stewardship practices, effective from the first quarter of 2020, BlackRock will shift from annual to quarterly voting disclosure. The company will promptly disclose how it voted on key high-profile company votes. It will provide a rationale for the voting decision. And it will include a list of topics discussed during every engagement with a portfolio company in its annual stewardship report.