The annual letter by the CEO of BlackRock Larry Fink is an anticipated event for clients of the world's largest asset manager. This year’s letter came with a little surprise as it was accompanied by a second letter written by members of the executive committee. Its purpose was to show the will of the American company to transform its practices and make sustainable investment the standard for BlackRock. Larry Fink explained why, and the executive committee announced how.
“We believe that sustainable investing is the strongest foundation for client portfolios going forward”, wrote Fink. According to him, climate change represents a “a much more structural, long-term crisis” than all the economic crises encountered during his 40-year career. BlackRock client investors are also worried, and an increasing number are asking to integrate climate risk into their portfolios. “If ten percent of global investors do so – or even five percent – we will witness massive capital shifts,” declared Fink.
Strengthen the voting strategy
This letter arrives in a context where BlackRock is increasingly recognized for its weak action on climate. Nevertheless, with more than $6.9 trillion in assets under management, this financial giant holds significant power which it does not always wield. American NGO Majority Action demonstrated this in a recent study on voting trends during company general meetings. They stressed that BlackRock voted against a majority of the climate-friendly resolutions.
Letters from Larry Fink and the executive committee seem to respond. First, the letters recall BlackRock’s membership in the Climate Action 100+ investor initiative. They also announce a new, more engaged voting policy. Blackrock explained its past votes by stating it was a result of ongoing discussions with company leaders to encourage them to transform and the need to give such companies time to organize. That time now seems to be over.
The BlackRock executive committee announced that it wants the companies in which it invests to communicate their strategy for reducing global warming below 2°C. "Given the preparatory work already accomplished and the increase in investment risks linked to sustainable development, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures ," they said. At the same time, BlackRock plans to communicate more frequently on its voting activity, which will make it possible to check whether its commitment is being respected.
Divest from thermal coal
BlackRock also plans to increase the share of sustainable investments in its portfolios. A provision which mainly concerns its active management, that is to say those client for which Blackrock can really choose where to invest. These assets represent $1.8 trillion of the company’s $6.9 trillion in managed assets. The rest of this sum is made up of indexation, which mirrors stock market indices.
Blackrock plans to stop investing in companies that derive more than 25% of their income from the production of thermal coal. Banks and insurance companies have already started this movement in recent years. BlackRock will also launch a new impact investment fund and expand the range of funds invested in low-carbon activities.
The strategy announced by Larry Fink will not change BlackRock’s profile overnight, but it is indeed a start to reallocating assets to less carbon-emitting companies. It remains to be seen whether the position of the world's number one asset manager will have a ripple effect on its competitors, including Vanguard.