World’s largest asset manager to take tougher stance against corporations that aren’t providing a full accounting of climate change risks
BlackRock Inc. BLK -0.21% said it would take a tougher stance against corporations that aren’t providing a full accounting of environmental risks, part of a slew of moves by the investment giant to show it is doing more to address investment challenges posed by climate change.
Among the moves, BlackRock said it would be increasingly disposed to vote against management and boards if companies don’t disclose climate change risks and plans in line with key industry standards.
BlackRock is also pulling back from thermal coal producers in actively managed debt-and-equity portfolios by mid-2020, a move that will lead to $500 million in sales. It will expand the range of sustainable investment products as well as double to 150 the number of exchange-traded funds that address environmental, social and governance challenges.
BlackRock is the world’s largest asset manager, with about $7 trillion under management. It has risen on the back of index funds that trade on exchanges and through these funds has extended its reach across nearly every company and is part of the retirement accounts of millions of people around the world. The firm also sits at the backbone of Wall Street as its software is used by banks to monitor their risks.
The firm said it is putting the focus on sustainability because the costs of climate change have ramifications on the price of assets and the financial ecosystem.
“Climate change has become a defining factor in companies’ long-term prospects,” BlackRock Chief Executive Laurence Fink said in his annual letter. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
The letter is a reflection of Mr Fink’s towering influence over companies. But the letter has rankled some rivals who have sometimes grumbled about what they consider to be a moralistic tone.
The rise of index funds transformed three firms into major forces in corporate America and thrust them into the public spotlight. The biggest—
- BlackRock,
- Vanguard Group and
- State Street Corp.
—hold roughly a fifth of the S&P 500 through funds they run for investors. They can cast critical votes and have the ears of chief executives. How they exercise this power—or choose not too—has ripple effects across markets.
All three have faced questions over their responsibilities as shareholders on behalf of investors in funds they run. In years past, these firms have targeted gender diversity in boardrooms among other issues.
Lately, there has been increased pressure on them to do more on climate change.
BlackRock’s offices around the world have been frequented by activists who blast the firm for being slow to act on green issues. The firm has debated a question internally: how can BlackRock ensure it has public support to operate in the countries where it does business as it continues to grow?
The firm said it would provide more information on data on the carbon footprint and other potentially controversial holdings in its mutual funds. It also said it would disclose more details of its conversations with the companies its funds invest in. BlackRock also recently said it had joined Climate Action 100+, the world’s largest group of investors by assets pressuring companies to act on climate change.
The moves come as regulators are scrutinizing ESG funds across the asset-management industry in an attempt to determine whether those claims are at odds with reality.
“Over the next few years, one of the most important questions we will face is the scale and scope of government action on climate change, which will generally define the speed with which we move to a low-carbon economy,” Mr. Fink said in his letter.
He added that “while government must lead the way in this transition, companies and investors also have a meaningful role to play.”
The Green Deal Will Make or Break Europe
The European Union’s new leadership has decided to invest much of its political capital in a plan to position Europe as the global leader in the transition to a carbon-neutral economy. But if too many constituencies feel as though they are being sacrificed on a green alter, the plan will never even get off the ground.
BERLIN – European Commission President Ursula von der Leyen’s ambition to lead a “geopolitical commission” is about to face its first big test. European heads of state are meeting to discuss her proposed European Green Deal, a sweeping project that could either unite the European Union and strengthen its position on the world stage, or generate a new intra-European political cleavage that leaves the bloc fractured and vulnerable.
The need for concerted action is clear. The Green Deal is a response to accelerating climate change, which poses an existential threat not just to Europe but to the entire planet. The problem does not observe national borders, and thus requires collective global action. But the transition to a carbon-neutral economy also offers far-reaching opportunities. With the right strategy in place, Europe can boost its own technological innovation and deploy carbon pricing and other fiscal policies to protect European labor markets from being undercut by lower-cost production in China and elsewhere.
Moreover, through the European Investment Bank, the EU already has a tool for mobilizing massive stores of capital for investments in infrastructure, research and development, and other essential areas. And, as Adam Tooze has argued, by issuing green bonds and other “safe assets,” Europe can secure greater economic independence from other powers and start to establish the euro as a global currency.
But alongside this positive vision are more dystopian scenarios in which the climate-policy debate creates geographic and socioeconomic divisions and fuels a populist backlash. Although climate change touches everyone, its effects are asymmetric, as are the costs of undertaking a transition to a carbon-neutral economy. The danger for Europeans is that the unequal distribution of the costs and opportunities will fuel a culture war between
This European debate is an echo of a broader global challenge. Many Eastern European countries still depend heavily on coal for energy generation, and thus fear that the push for carbon neutrality is an underhanded form of protectionism by advanced economies like Germany. Poland’s energy minister, Krzysztof Tchórzewski, has dismissed as “a fantasy” the notion that Poland – which relies on coal for 80% of its electricity – could achieve carbon neutrality by 2050, and estimates that the costs of such a transition would approach €1 trillion ($1.1 trillion).
But, in addition to the east-west divide, the Green Deal could also create political rifts within every EU member state. French President Emmanuel Macron has tried to position France as a global climate leader. But his government’s attempt to raise taxes on fuel last year backfired when millions of gilets jaunes (“yellow vests”) took to the streets in protest in late 2018.
The European Council on Foreign Relations has conducted in-depth polling to understand policy preferences across Europe, and we have found climate policy to be a particularly divisive issue. On the surface, around two-thirds of Europeans in most countries polled think that tackling climate change should be a priority, even if it means curtailing economic growth. But up to one in four people do not think that climate change is a real threat, and are far more worried about Islamic radicalism and the rise of nationalism.
The gilets jaunes are not an isolated phenomenon. Recent elections have shown how a program like the Green Deal could become a useful punching bag for populists and parties like the Alternative für Deutschland (AfD) in Germany and Rassemblement National (National Rally, formerly the National Front) in France.
Critically, once you move from asking people whether climate change is a problem to how it should be addressed, concerns about socioeconomic fairness and the distribution of costs prove hugely divisive. Even in the European Parliament, where 62% of MEPs were elected on green-inspired platforms, only 56% agree that the EU should be pursuing a rapid transition to a low-emissions economy. Moreover, only one-third of MEPs are prepared to take tough action against companies with large carbon footprints.
Generally speaking, then, there are two possible futures for European climate policy. The Green Deal could become Europe’s chief new cause, lending momentum to European integration and strengthening the EU’s global position vis-à-vis China and the United States. Or, it could become the next “refugee crisis,” a singularly potent issue that divides Europe between east and west, and that mobilizes populist forces within countries across the bloc.
To make the first scenario more likely, EU leaders need to listen less to moralists like the young climate activist Greta Thunberg, and more to pragmatic realists who understand that paying off reactionary forces has long been part of the price of progress. The only way to shepherd the Green Deal to successful implementation will be to offer large fiscal transfers to the laggards, so that they, too, will have a stake in the clean-energy transition. Without European unity, there can be no effective European response to climate change.