Larry Fink, chief executive of BlackRock, outlined new standards for corporate disclosure around sustainability and warned that, going forward, the fund manager will vote against management and board directors who do not meet these guidelines.Shannon Stapleton/Reuters
Climate-change activist Greta Thunberg has a new ally in Larry Fink, the influential chief executive of BlackRock Inc., one of the world’s largest fund managers.
In a call-to-action letter to fellow CEOs and investors released on Tuesday, Mr. Fink said climate change "has become a defining factor in companies’ long term prospects.” The co-founder of New-York-based BlackRock, which oversees US$6.9-trillion for clients, outlined new standards for corporate disclosure around sustainability and warned that, going forward, the fund manager will vote against management and board directors who do not meet these guidelines.
In tandem with Mr. Fink’s letter, BlackRock announced stricter policies around sustainability that will eliminate holdings in companies that generate more than 25 per cent of their sales from thermal coal. BlackRock is also introducing new exchange-traded funds (ETFs) that filter out companies connected to fossil fuels.
Mr. Fink, 67, has long tried to play the role of the market’s conscience, stressing that corporations must be purpose-driven and serve all stakeholders, not just shareholders. His letter opens by highlighting marches in September that saw millions of people take to the street to call attention to client change, following Ms. Thunberg’s speech at the United Nations. He said many protesters focused on the lasting impact it will have on economic growth and prosperity, “risks that markets to date have been slower to reflect. But awareness is rapidly changing and I believe we are on the edge of a fundamental reshaping of finance.”
BlackRock’s clients include the world’s largest pension plans and sovereign wealth funds, and Mr. Fink said many of these investors plan to shift their capital into “sustainable strategies.” He said: “If 10 per cent of global investors do so, or even five per cent, we will witness massive capital shifts.” Mr. Fink’s goal is to do well by doing good, as the letter says that investments made with an eye toward sustainability and climate change will provide better risk-adjusted returns.
BlackRock is pushing companies to disclose information around climate-change risk and a broad range of social and governance issues, such as labour practices, data privacy and ethics, in step with guidelines established by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures. “In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk,” Mr. Fink said.
“Companies, investors and governments must prepare for a significant reallocation of capital,” said Mr. Fink, whose team has briefed Prime Minister Justin Trudeau on economic issues in the past. The former investment banker said he has witnessed numerous market downturns – inflation issues in the 1970s, the Asian currency crisis in 1997, the dot-com bubble in the late 1990s and the global financial crisis in 2008. He said: “Climate change is different. Even if only a fraction of the projected impact is realized, this is a much more structural, long-term crisis.”
To meet expected demand for sustainable investment products, BlackRock plans to market up to 150 ETFs that use environmental, social and governance (ESG) standards in their investing process, doubling the number of ESG-themed funds that it currently offers. The company’s goal is to increase assets held in sustainable funds more than tenfold in the next decade, from US$90-billion to more than US$1-trillion.
Mr. Fink joins a long line of Canadian financiers who are banging the drum on the need to integrate climate- change issues into business strategies. After taking power in 2015, the federal Liberals launched an Expert Panel on Sustainable Finance, chaired by Tiff Macklem, dean of the University of Toronto’s Rotman School of Management. In addition, Bank of England Governor Mark Carney is the United Nations’ newly named special envoy on climate action and climate finance, a role the former Bank of Canada governor will fully embrace when he finishes his term at the U.K.’s central bank in March and returns to Ottawa.
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Andrew Willis