Dec 1, 2020 - Energy & Environment

BlackRock unveils new way to assess climate investment risk

Illustration of pile of money in the Arctic
Illustration: Rebecca Zisser/Axios

Investors will be able to see what impact a warming world and the transition to cleaner energy sources could have on their portfolios in a tool BlackRock unveiled Tuesday.

Why it matters: The move by BlackRock, the world's biggest money manager, is one of the most concrete signs investors are getting more serious about acting on risks they’ve been saying for years they’re worried about.

What's new: A lot of disparate data already exists about the impacts of climate change, but BlackRock is integrating the data into its risk management platform, Aladdin, to make it more actionable, according to Mary-Catherine Lader, the platform’s top sustainability official.

  • Aladdin is used by many of the world’s largest pension funds, asset managers, insurers and other institutional investors.
  • Investors won’t be required to use this new component, but Lader said the goal is that by making more data more readily available on the platform investors already use will empower more climate action.
  • BlackRock, which is already using it, is planning more action in this area. "In 2021, BlackRock will be incorporating climate risk across our platform as a critical investment risk like liquidity risk," Lader said.

What they're saying: "It's climate risk going mainstream," said Trevor Houser, partner at the Rhodium Group, a consulting and research firm whose data BlackRock is using for a portion of its new platform.

The big picture: Climate change poses two types of risks: Those that come from a warming world, and those that come from the world transitioning to cleaner energy. Ocean-front property is at risk of the former; fossil-fuel companies the latter (to name two obvious examples).

How it works: Aladdin Climate, as it’s called, inputs data on both risks from many sources, some through partnerships like with Rhodium Group, and others from publicly available sources like the International Energy Agency and the Paris Climate Agreement goal.

  • The platform includes a ranking system that compares an investment’s climate risk to that of similar investments (including specific companies) from zero to 10, zero being good for a warming world (or energy transition) and 10 being bad.
  • Firms will be able to set policies limiting investments in anything over a specific level.
  • It will also let investors compare climate risk’s impact to other economic risks.

The intrigue: Lader's boss is Brian Deese, President-elect Joe Biden’s pick for his top economic adviser. Deese has been BlackRock’s global head of sustainable investing for the last few years after holding top climate positions in the Obama administration.

  • "Our leadership has been deeply involved," Lader said when asked about Deese's involvement.

Yes, but: With Deese's appointment, BlackRock is coming under renewed criticism from some progressive climate activists.

  • They argue the firm is not moving aggressively enough to ditch investments in oil, natural gas and coal and to hold other investors accountable in more concrete ways.

What we're watching: BlackRock spokesman Logan Koffler pointed to the annual letter BlackRock Chairman and CEO Larry Fink has sent to CEOs urging more consideration of climate change as evidence the firm is actively engaging on the matter. Expect more on this.

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