BlackRock CEO: “Fundamental Reshaping of Finance” Approaching
Larry Fink, CEO of the World’s Largest asset management group Says Sustainability is the key to the future of finance. We’ve broken down his letter to investors and his warning to other leaders in the financial space.
Larry Fink is one of the most influential human beings currently walking on the planet- perhaps more so than sitting CEOs and even political figures. How? Well, he’s the chairman and CEO of BlackRock, the world’s largest asset management company, which at the end of 2019 had just under USD $8-trillion under its management. He’s also a man that believes staunchly that the smart money in finance should be moving away from certain areas, and toward others.
As such, he’s released a letter to Blackrock’s shareholders, CEOs and future prospects stating that “the money we manage is not our own. It belongs to people in dozens of countries trying to finance long-term goals like retirement. And we have a deep responsibility to these institutions and individuals - who are shareholders in your company and thousands of others - to promote long term vision.”
He goes on to explain that “climate change has become a defining factor in companies’ long-term prospects,” citing the climate change rallies that saw millions take to the streets demanding international policies change to reflect the numerous warnings scientists have issued about the dangers of climate change. “Awareness is rapidly changing,” Fink explains, “and I believe we are on the edge of a fundamental reshaping of finance.”
“The evidence on climate risk is compelling investors to reassess core assumptions about modern finance,” he wrote, adding that “in the near future - and sooner than most anticipate - there will be a significant reallocation of capital.” It’s clear from Fink’s message and tone that the future of smart money is sustainable investments in all senses and definitions of the phrase.
Blackrock echoed this in a letter issued to its clients detailing a number of its current initiatives that put sustainability front-and-center to the firm’s approach to investments. This includes, according to Fink, “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.”
The firm has announced that it will offer “sustainable versions of our flagship model portfolios, including our Target Allocation range of models. These models will use environmental, social, and governance (ESG)-optimised index exposures in place of traditional market-cap-weighted index exposures.”
Blackrock states that “currently, every active investment team at Blackrock considers ESG factors in its investment process and has articulated how it integrates ESG in its investment processes. By the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated - meaning that, at every portfolio level, our portfolio managers will be accountable for appropriately managing exposure to ESG risks and documenting how those considerations have affected investment decisions.”
Blackrock’s risk-based thinking approach to managing finance is now taking into account sustainability and environmental considerations, and it’s difficult to understate just how important of a move this is. In terms of precedent, it’s not the first firm, but it’s by far and away the largest to take an active approach to sustainable investments and increasing the transparency of its investment modeling.