BlackRock, the world’s largest asset manager, will push companies to pledge to achieve net zero emissions by 2050 and has raised the possibility of dismissing companies that don’t from its actively managed funds.
In a pair of letters sent Tuesday to CEOs and clients of BlackRock, CEO Larry Fink said a “tectonic shift” in the investment landscape was happening faster than expected.
Investors are reallocating capital to companies with strong environmental, social and governance practices, Fink said in his annual letter to business leaders. “There is no company whose business model will not be profoundly affected by the transition to a net zero economy.” he wrote.
With almost $ 8.7 billion in assets under management, including more than $ 5 billion in passive investment vehicles that track market indices, BlackRock is a major shareholder in most major corporations around the world.
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The asset manager will ask invested companies to disclose their planning to meet a goal of not emitting more carbon dioxide than they remove from the atmosphere by 2050, Mr Fink said.
In a separate letter to clients, BlackRock outlined the risk management tools to help investors prepare their portfolios for a net zero world – as well as the steps to take if companies fail to manage this transition.
BlackRock said that the companies’ lack of progress would prompt them to “not only use our vote against management for our stocks held in our index portfolio, but we will also flag those holdings for potential exit from our discretionary asset portfolios because we think they would present a risk. feedback from our customers ”.
Mr. Fink warned that “companies that do not prepare quickly will see their businesses and valuations suffer, as these same stakeholders lose confidence that these companies can adapt their business models to the dramatic changes to come.”
In 2020, fourth-fifths “of a selection of globally representative sustainable indices have outperformed their five benchmarks,” said Fink, suggesting that ESG considerations were already affecting stock prices.
“From automobiles to banks to oil and gas companies. . . companies with better ESG profiles outperform their peers, benefiting from a “sustainability premium”. ”
Last year, BlackRock’s iShares ESG Aware exchange-traded fund attracted $ 9.5 billion in inflows and ranked fifth among U.S. funds that gained new assets, according to Morningstar.
BlackRock isn’t the only fund manager pushing companies to cut emissions. A group of 30 of the world’s largest asset managers, including Fidelity, Legal & General Investment Management, Schroders, UBS Asset Management, M&G, Wellington Management and DWS, announced in December their commitment to reduce their portfolio emissions to zero by by 2050.
The best way for an investment manager to encourage recipient companies to adopt a net zero goal is to call on companies to set “short, medium and long term science goals for their own emission reduction trajectory,” related to the needs of their own industry, ”said Eli Kasargod-Staub, co-founder of Majority Action, a campaign group.
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