BlackRock is not the “environmental police”

Laurence “Larry” Fink, Chairman and Chief Executive Officer of BlackRock Inc. pauses as he speaks during the BlackRock Asia Media Forum in Hong Kong, China.

Justin Chin | Bloomberg | Getty Images

wealth managers like BlackRock are not “the environmental police,” Larry Fink said in his Chairman’s Annual Letter to investors, which was released on Wednesday.

“As I have said for many years, it is for governments to make policy and legislate, not for corporations, including asset managers, to be the environmental police,” Fink wrote.

But BlackRock takes its role as fiduciary to clients incredibly seriously, the letter makes clear. To do this job well, BlackRock needs to monitor climate change risks for financial assets.

“Long-term investing requires a long-term view of what will affect returns, including demographics, government policies, technological advances and the transition to a low-carbon economy,” Fink wrote.

“We have viewed climate risk as an investment risk for years. That’s still the case,” said Fink.

Fink has become a target for Republican lawmakers who view environmental, social and governance (ESG) investments as proxies for financiers to impress their political views.

In August 2022, for example, Texas auditor Glenn Hegar targeted BlackRock, adding the money manager to a list of financial firms that had done so “Boycott energy companies.”

“Everyone can see the effects”

In his annual letter, Fink highlighted how climate change is already affecting financial markets and the economy.

“Anyone can see the effects of climate change in the natural disasters in California or Florida, in Pakistan, across Europe and Australia and many other places around the world. There are more floods, more wildfires and heavier storms. It’s hard to find any part of our ecology – or our economy – that isn’t affected,” Fink wrote. “Finance is not immune to these changes. We are already seeing insurance costs increasing in response to changing weather patterns.”

Natural disasters cost insurance giant Munich Re $120 billion in 2022, which Fink described as a “once unthinkable figure.”

The federal government’s National Flood Insurance Program, which underwrites many insurance policies in Florida, is $20.5 billion in debt and has had to borrow money from the US Treasury Department, Fink said.

Blackrock has clients who want to invest in the energy transition and others who don’t, Fink said, and Blackrock serves both types. However, if clients wish to understand how climate risk is affecting their investments, Blackrock makes this information available.

I wrote last year that the next 1,000 unicorns will not be search engines or social media companies. Many of them will be sustainable, scalable innovators – start-ups helping the world to decarbonize and make the energy transition affordable for all consumers. I still think so.

Larry Fink

Managing Director of Blackrock

“It is not the job of an asset manager like BlackRock to achieve a specific outcome in the economy and we do not know the ultimate path and timing of the transition. Government policies, technological innovation and consumer preferences will ultimately determine the pace and extent of decarbonization,” Fink wrote. “Our job is to think through and model different scenarios to understand the impact on our clients’ portfolios.”

Fink is therefore pushing for companies to disclose climate risks. More than half of the S&P 500 voluntarily report their own Scope 1 and Scope 2 emissions, Fink said.

Scope 1 emissions are those greenhouse gases that come from assets owned or controlled by an organization, such as: B. boilers, furnaces or vehicles, according to the US Environmental Protection Agency. Scope 2 emissions are the greenhouse gas emissions associated with the electricity, steam, heat, or cold that an organization uses.

Scope 3 emissions, which are much more difficult to track, are emissions resulting from assets in an organization’s supply chain.

While Fink endorses the importance of measuring climate risk in business, he also says oil and gas are necessary to meet energy needs in the short term. BlackRock invests in natural gas pipelines, with efforts being made to mitigate methane emissions from those natural gas pipelines, Fink said.

At the same time, BlackRock offers investors opportunities to invest in clean technologies, such as carbon dioxide storage pipelines and technologies that turn waste into natural gas, he said.

“I wrote last year that the next 1,000 unicorns will not be search engines or social media companies. Many of them will be sustainable, scalable innovators – startups helping the world to decarbonize and make the energy transition affordable for all consumers. I still believe that,” Fink writes. “For clients who decide, we connect them to these investment opportunities.”

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