Illustration: Sarah Grillo/Axios
BlackRock, the world's largest asset manager, vowed on Tuesday to make climate change a pillar of its corporate strategy and mission.
Why it matters: BlackRock has $7 trillion in assets under management, and faces growing activist pressure to use its leverage to hasten the global transition to low-carbon energy.
- The New York Times' Andrew Ross Sorkin writes that the moves "could reshape how corporate America does business and put pressure on other large money managers to follow suit."
Driving the news: CEO Larry Fink, in his annual open letter, writes that climate is a "defining factor in companies’ long-term prospects" and that "we are on the edge of a fundamental reshaping of finance."
The company announced a suite of new steps on climate and weaving sustainability into their investment products, including...
- Offering "sustainable versions of our flagship model portfolios." They will "use environmental, social, and governance (ESG)-optimized index exposures in place of traditional market cap-weighted index exposures."
- Doubling the number of ESG-focused exchange traded funds it offers over the next few years, and new tools to help clients screen out fossil fuels.
- Dropping companies that produce coal used in power production from its active investment portfolios. It applies to companies that derive more than a quarter of their revenues from thermal coal production.
- Vowing to include more "sustainability integration" into their active investment portfolios.
- A tougher posture on climate-related shareholder resolutions. "[W]e will be increasingly disposed to vote against management when companies have not made sufficient progress," they said. The company has faced criticism for voting against key shareholder resolutions that push companies to take stronger steps.
The big picture: The moves come days after BlackRock joined the investor advocacy network Climate Action 100+.
The intrigue: The letter hints at why BlackRock will face continued criticism from activists who want more aggressive movement away from fossil fuels.
- "Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today’s essential uses of hydrocarbons," Fink tells CEOs.
- "We need to be mindful of the economic, scientific, social and political realities of the energy transition," he adds.
The other side: Axios touched base with the Sunrise Project, which pushes financial firms to pull money away from coal, oil and gas and is part of the wider BlackRock's Big Problem campaign.
- Its senior strategist Diana Best said, “BlackRock beginning its shift of capital out of fossil fuels, including today’s divestment of coal in its actively managed funds, is a fantastic start and instantly raises the bar for competitors such as Vanguard and State Street Global Advisors.
- However, she notes BlackRock will "still remain one of, if not the largest, investors in fossil fuels."
- "So we will be looking for additional leadership from the company in, as Larry Fink said, ‘fundamentally reshaping finance to deal with climate change,' including additional shifts of capital out of fossil fuels."