Yesterday, BlackRock chairman and CEO Larry Fink announced that it will make climate change central to its investment considerations and reallocate a significant part of its capital. As the world’s largest asset manager, its (partial) divestments from companies producing coal and other fossil fuels indicates a shift within financial markets. Investors and companies are increasingly under pressure to consider their impacts on climate, especially from younger shareholders.
The wildfires in Australia bring a reminder that climate change is already happening. Furthermore, NOAA and NASA released data today concluding that the last decade was the warmest on record (see image). BlackRock’s announcement is part of a larger trend of investors heeding the call to act to limit rising global temperatures and mitigate the worst impacts of a warmer climate. Capital markets are finding efficient investment solutions to address resource needs. Greenleaf along with DePaul University hosts an annual Wealth Management Conference bringing together wealth managers and experts in climate, energy, and water issues focusing on how wealth managers can invest advantageously by following environmental, social, and governance (ESG) principles.
At the least, BlackRock’s announcement shows that investors and corporate leaders are becoming attuned to what these impacts will mean for shareholder value. “Stranded assets” – the implications that trillions of dollars of corporate value could be obliterated – is no longer an abstract concept. Resources for the Future, a DC-based non-profit research organization, recently interviewed Robert Litterman about pricing climate risk in the markets in a context of uncertainty. Litterman is founding partner of Kepos Capital and chair of the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee. He discusses the findings of his recently published economic research paper, "Declining CO2 price paths", in particular the need for a price on carbon that starts out high and is slowly brought down (rather than vice versa).
BlackRock’s commitments are commendable although they concern a still relatively small portion of investments. Nevertheless, it joins a growing number of investors and companies making clear commitments to clean energy and a healthy planet. At Greenleaf, we support climate policies based on sound science and economic research in our mission to advance a healthy and sustainable world. We all share a responsibility to mitigate climate change and leave a legacy of hope for future generations.