Staff Writer | Palladium - Jan 15 2020
Climate Risk is Investment Risk, According to BlackRock CEO

In his highly anticipated annual letter, BlackRock CEO Larry Fink announced this week that the asset management giant will be placing sustainability at the centre of its investment approach – including by exiting “high risk” investments such as coal and screening for fossil fuels.

“I believe we are on the edge of a fundamental reshaping of finance,” wrote Fink, anticipating “a significant reallocation of capital” as the risks from climate change force businesses and investors to shift their strategies. This is in contrast to his 2019 annual letter, which made no mention of climate change.

With $6.9 trillion in assets under management, Fink’s letters often set the tone for the industry, shaping the conversation for the year to come. While some liken them to what climate activist Greta Thunberg called “creative PR” at this year’s UN climate summit in Madrid, CEOs and investors hold them in high regard.

“Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,” Fink said in the letter. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

In a world in which social impact and profit have long been misunderstood as mutually exclusive, this perspective marks a welcome change. It also pushes the world’s largest asset manager squarely into the realm of impact investing, raising the stakes for other financial institutions.

Beyond BlackRock’s own strategy and initiatives, Fink also highlighted the role that governments and companies play, calling on all stakeholders to confront climate change. He echoed the Business Roundtable’s 2019 statement, underscoring that “a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders,” with a more sustainable and inclusive capitalism as the end goal.

According to Palladium Director Eduardo Tugendhat, while Fink’s letter addresses the transition to new realities for corporations, inclusive growth and enduring social impact must also bring up those already left behind.

“It’s not clear what will make capital available at acceptable cost,” Tugendhat says, “and what will motivate corporations to invest when the returns accrue as much to other stakeholders as to themselves.”

Nonetheless, Fink’s message is clear: “Ultimately, purpose is the engine of long-term profitability.”