Published on 09 February 2021

SUSTAINABLE FINANCE

Larry Fink leads BlackRock into a net-zero commitment, but first they’ll need to show it

Larry Fink, CEO of BlackRock, recently sent his annual letter to clients and business leaders around the globe. Fink announced that he wants to commit the company to more than $8.6 trillion in carbon-neutral assets under management by 2050. Calculation of portfolio temperatures, shareholder engagement, low-carbon products…it will be the complete package. This is a strong commitment for the world’s largest asset manager, but BlackRock will have to prove that they can move from talk to action.

Larry Fink PDG BlackRock oBlackRock
Larry Fink, CEO of BlackRock
@BlackRock

BlackRock is committed to achieving net-zero greenhouse gas emissions by 2050. This was the most significant announcement in this year’s annual letter from Larry Fink, CEO and founder of the world’s largest asset manager, whose assets under management reached $8.6 trillion in 2020. 'We believe all companies - including BlackRock - must begin to address the transition to net-zero today,' wrote Fink. To do this, the asset manager will implement new practices and methodologies throughout 2021.

In particular, the management company decided to publish "a temperature alignment metric for its public equity and bond funds, where sufficient data is available", wrote Fink. Last year, however, the asset manager asked companies to report their climate data according to the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD) and according to SASB standards. This simple request seems to have not been enough, with the $8.6 trillion in assets under management not fully covered by portfolio temperature. “This represents a high proportion,” according to Carole Crozat, Head of Thematic Research at BlackRock Sustainable Investing (BSI).

Intermediate Target in 2030

The temperature metric is intended to set an intermediate alignment target with the Paris Agreement by 2030. Therefore, the asset manager will now work on all of its portfolios, but their method to achieve this is not yet known.  "There is no consensus on the temperature calculation methodology," explained Crozat. She continued, “we need to analyze the trajectory of each company according to its current greenhouse gas emissions and its commitments, to allow us to draw an emission trajectory by 2030 and 2050. By aggregating them, we can achieve a carbon budget that determines the temperature”.

Nevertheless, the means of achieving carbon neutrality have not yet been determined. According to a study by NGOs Reclaim Finance and Urgewald, BlackRock is still exposed to thermal coal to the tune of $85 billion. The exclusion policy introduced in early 2020 provided that BlackRock would no longer invest in companies with more than 25% of their turnover from thermal coal, for its active management activity (roughly one-quarter of overall activity). However, this threshold is much too high, leaving the possibility for the management company to invest in large coal producers such as BHP or Glencore. 

An enhanced surveillance model

BlackRock does not plan to review the threshold at this time. However, the asset manager is setting up a 'strengthened monitoring model' for the most emitting industries, including fossil fuels. Approximately 1,000 companies in its portfolio are concerned and will be the subject of a shareholder commitment on their net-zero alignment strategy. "When there is not enough progress, we will use the right to vote against management. It is an effective, systematic, and binding tool," said Crozat.

The asset manager also plans low-carbon investment solutions for its clients, with net-zero alignment targets, or maintaining actions already aligned with them. "This means that our customers can no longer be exposed to coal or other fossil fuels," explained Crozat. The products in question have not yet been disclosed. According to the report by Reclaim Finance and Urgewald, sustainable ETFs currently represent only 3% of BlackRock’s total ETF range.

Arnaud Dumas, @ADumas5


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