Listen to BlackRock on climate-responsive investing

When BlackRock speaks on climate-responsive investing, listen

Climate

In the waning days of 2019, millions campaigning for climate action across the world were left disappointed that the 25th UN annual climate negotiations meeting ended in disarray. Despite extending the two-week Madrid conference by two days, and after 25 consecutive conferences convened in diverse cities, countries failed to deliver essential outcomes such as setting a rulebook for the 2015 Paris Agreement, and designing a global carbon market.

Valuable biodiversity resources have been lost forever and glaciers have melted whilst intergovernmental textual agreement on ambitious climate action remains quixotic. But it is the massively inequitable scope and scale of climatic adversities on the poorest and most vulnerable, which has been consistently acknowledged and yet left unaddressed, that is the tragedy for developing countries.

Calling attention to the massive scale of loss, devastation and dislocation imposed by climate change, the UN Special Rapporteur on extreme poverty and human rights, Philip Alston, recently pointed out: “Perversely, while people in poverty are responsible for just a fraction of global emissions, they will bear the brunt of climate change, and have the least capacity to protect themselves…We risk a ‘climate apartheid’ scenario where the wealthy pay to escape overheating, hunger and conflict while the rest of the world is left to suffer.”  

So, what exactly will the wealthy do in response to a “climate apartheid” scenario? Well, in 2019, according to Eco-Watch, a highly selective, by-invitation only, celebrity–focused, three-day Google camp on climate change which cost upwards of $20 million, meant that Palermo airport prepared “for the expected arrival of 114 private jets!”

But in January 2020, it appears that climate-responsive investing (for those who access asset fund managers) is conclusively here -- jumpstarted by two letters written by Larry Fink, the head of BlackRock to CEOs and clients, respectively. The fact that the world’s largest asset fund manager was explicit that BlackRock is now putting “sustainability at the center of our investment approach” is the analog of a paradigm shift for global investors. A January 15, 2020, article by Dawn Lim in the Wall Street Journal described just how big a global imprint BlackRock Inc. has as its “assets surpassed $7 trillion for the first time as the investment giant reported record-setting flows in 2019.”  

What sets Fink’s letter to CEOs apart is not just the global significance of his company but his argument that BlackRock is an asset manager that “invests on behalf of others”, and that he is writing “as an advisor and fiduciary” to clients because, as he puts it, “the money we manage is not our own. It belongs to people in dozens of countries trying to finance long-term goals like retirement. And we have a deep responsibility to these institutions and individuals – who are shareholders in your company and thousands of others – to promote long-term value.”

His explicit recognition that “climate change has become a defining factor in companies’ long-term prospects” also touches on another key point, which is that climate activism by ordinary people apparently resonated in the shift towards sustainable, climate responsive investment decision-making.

As Fink point outs, “Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk 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.”

Fink‘s blunt truths make it harder for climate change deniers who have tried to obfuscate the preponderance of evidence regarding climate risk. BlackRock’s conclusion that “climate risk is investment risk” fundamentally alters investment assumptions, but it also has huge relevance for governmental decision-making related to the policy intersection between highly polluting solid-fuel energy reliance and climate vulnerabilities.

BlackRock signals that it will exit thermal coal which is “becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector. As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.”

This deadline of mid-2020 is a tell-tale signifier that private sector investment decisions are moving exponentially faster than governmental decision-making regarding the risks of thermal power reliance.

But it is Fink’s reference that a sustainable energy transition “will still take decades” which is crucially relevant for cities in India trying to simultaneously cope with high levels of energy-related air pollution and climatic adversities. The question of how exactly poorer communities and countries and the private sector can work together to pursue a fair and just energy transition —which Fink argues “cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world” —remains unanswered.

Fink makes a forceful call for governments to lead the way so that companies/ investors can follow, and goes on to point out that BlackRock was “a founding member of the Task Force on Climate-related Financial Disclosures (TCFD)” and a signatory to the UN’s Principles for Responsible Investment (PRI) amongst other partnerships.

This is where countries like India, where increasing access to clean energy is irrevocably linked to climate action and which have championed solar and other forms of renewable energy, can take a lead role in advocating for synergistic partnership action. But delivering on the promise of linked climate and sustainable energy partnerships for millions who are currently being “left behind” requires the elimination of intergovernmental silos that segregate sustainable energy from climate goals and thereby stymie the creation of globally accessible, fully integrated clean energy and climate transition partnership framework.

(The writer is a climate change and clean energy consultant)

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