In a wide ranging Letter to CEOs, timed to coincide with Davos, Blackrock signalled that "Companies, investors, and governments must prepare for a significant reallocation of capital" and announced, among other things, that it was divesting from any company generating more than 25% of revenue from thermal coal. The Blackrock letter is significant as it takes the climate crisis to a whole new reality and a whole new audience. Because no matter what anyone believes in relation to the climate crisis, they believe in what money says. And when the Larrys of the world start talking 'poor long term investment performance prospects', people listen.While the letter dealt with the wider subject as much as investment in thermal coal, the subject is a good example of the way things are changing around here economically. It's no secret that coal companies in major markets are slowing as decarbonising and clean energy companies gain pace. Even traditional energy companies, who until recently relied heavily into fossil fuels are decarbonising.Coal mines are also heavily subsidized by taxpayers - and to what end? The Adani mine for instance is set to receive effective subsidies of $4billion according to a report by the Institute of Energy Economics and Financial Analysis, over its 30-year project life. In the context of climate change impacts, 30 years is an eternity and $4billion is a pile of money better used elsewhere.
Blackrock controls about US$7 trillion in funds under management and is the biggest institutional investor in the world. What changed and got everyone's attention around Davos this past week was Larry Fink's letter to CEOs. In his latest letter he asks that companies in which BlackRock invests, produce sustainability and climate-related risk disclosures against specified international frameworks. The request came with a warning:“GIVEN THE GROUNDWORK WE HAVE ALREADY LAID ENGAGING ON DISCLOSURE, AND THE GROWING INVESTMENT RISKS SURROUNDING SUSTAINABILITY, WE WILL BE INCREASINGLY DISPOSED TO VOTE AGAINST MANAGEMENT AND BOARD DIRECTORS WHEN COMPANIES ARE NOT MAKING SUFFICIENT PROGRESS ON SUSTAINABILITY-RELATED DISCLOSURES AND THE BUSINESS PRACTICES AND PLANS UNDERLYING THEM.”
In the letter to CEOs, Fink specifically called out their intention to: "PLACE SUSTAINABILITY AT THE CENTER OF OUR INVESTMENT APPROACH, INCLUDING: MAKING SUSTAINABILITY INTEGRAL TO PORTFOLIO CONSTRUCTION AND RISK MANAGEMENT; EXITING INVESTMENTS THAT PRESENT A HIGH SUSTAINABILITY-RELATED RISK, SUCH AS THERMAL COAL PRODUCERS; LAUNCHING NEW INVESTMENT PRODUCTS THAT SCREEN FOSSIL FUELS; AND STRENGTHENING OUR COMMITMENT TO SUSTAINABILITY AND TRANSPARENCY IN OUR INVESTMENT STEWARDSHIP ACTIVITIES."BlackRock also went on to say in the letter that it has joined with France, Germany, and global foundations to establish the Climate Finance Partnership, which is one of several public-private efforts to improve financing mechanisms for infrastructure investment. The need is particularly urgent for cities, because the many components of municipal infrastructure – from roads to sewers to transit – have been built for tolerances and weather conditions that do not align with the new climate reality. In the short term, some of the work to mitigate climate risk could create more economic activity. Yet we are facing the ultimate long-term problem. We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change.
AS WE APPROACH A PERIOD OF SIGNIFICANT CAPITAL REALLOCATION,COMPANIES HAVE A RESPONSIBILITY – AND AN ECONOMIC IMPERATIVE – TO GIVESHAREHOLDERS A CLEAR PICTURE OF THEIR PREPAREDNESS. AND IN THE FUTURE, GREATERTRANSPARENCY ON QUESTIONS OF SUSTAINABILITY WILL BE A PERSISTENTLY IMPORTANTCOMPONENT OF EVERY COMPANY’S ABILITY TO ATTRACT CAPITAL.