Climate change is about to trigger “a fundamental reshaping of finance”, says Larry Fink, the chief executive of BlackRock, the world’s largest asset manager. Greatly increased risk of floods or drought poses a threat to “core assumptions” about the way that the modern markets work. “What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in the impacted areas?”
But putting “sustainability at the centre of our investment approach” – as Fink says he now wants to do – may be harder than it sounds for a firm that holds two-thirds of its $7trn of assets in index-tracking funds, says Annie Massa on Bloomberg. BlackRock says that it will start ditching investments such as thermal coal producers from its active funds. However, with trackers, it’s the index compilers such as MSCI who decide what goes into the funds, so changing the holdings will be trickier.
BlackRock will launch further sustainable ETFs and push index providers to create sustainable versions of key indices to provide an alternative. But its most powerful weapon would be its “enormous voting muscle”, says Nils Pratley in The Guardian – that is, backing shareholder resolutions aimed at improving the behaviour of “foot-dragging management”. Here, Fink’s comments are vague, merely saying that the firm will be “increasingly disposed” to do so. That “does not sound like a battle cry”.
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