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BlackRock Says Active Managers Should Seize ESG to Beat Market

A logo sits on display at the entrance to the Blackrock Inc. offices in London, U.K., on Friday, Feb. 7, 2020. An early front-runner for a successor as the Bank of Canada governor is Jean Boivin, the head of BlackRock Inc.’s research unit in London and a Carney protege who was brought to the Bank of Canada in 2010 from academia. Photographer: Simon Dawson/Bloomberg

(Bloomberg) —

BlackRock Inc. said active investors have an opportunity to beat the market by digging deeper into information about the sustainability of companies.

While countless data points exist on environmental, social and governance issues, only a fraction materially affect financial performance, the world’s largest asset manager said in a report published Tuesday.

Investors also face challenges because companies self-report some ESG information and third-party rating firms use different methods for scoring sustainability, BlackRock said.

BlackRock, with $9.46 trillion in client assets, said active money managers are instead turning to alternative sources of data — such as patents for clean-energy technology or a company’s buildings and their energy use — to get insights into potential investments.

“We believe that incorporating sustainable data into the investment decision-making process can help investors find an edge in determining which securities might be poised to outperform,” said the authors, including Rich Kushel, head of the portfolio management group, and Eric Van Nostrand, head of research for sustainable investments and multi-asset strategies. “Relying only on self-reported corporate ESG data points is limiting in our view.”

BlackRock executives maintain that global capital markets are about to witness a massive shift of money into products that promise ESG goals. Of the $98 billion in long-term net flows that the firm took in last quarter, about one third, or $32 billion, went into sustainable funds — a quarterly record, the company said.

BlackRock also said Tuesday that it is starting nine new funds and re-purposing seven equity and fixed income funds with specific ESG criteria in their objectives.

© 2021 Bloomberg L.P.

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