When it comes to climate change, BlackRock wants to make its shareholders’ money and votes count. The world’s largest money manager is committed to helping the world transition to a net-zero carbon-emission goal by 2050. And what better way to achieve this than telling over 1,000 carbon-intensive companies that they’re either on board with the goal, or at risk of being voted against or put “on watch” if they’re not.
This is just one of several sustainability goals outlined in this year’s letter to shareholders that BlackRock recently published. The New York-based firm calls sustainability “the tectonic shift transforming investing.”
It is dedicated to showing that the commonly held view that investors need to sacrifice returns when adopting sustainable investing is wrong. In fact, BlackRock believes the opposite is true.
“During 2020, 81 percent of a globally representative selection of sustainable indexes outperformed their parent benchmark,” states the letter. “The outperformance was even more pronounced during the first quarter downturn, another instance of sustainable funds’ resilience that we have seen in prior downturns.”
It also points to data that from January to November 2020, sustainable mutual funds and ETFs saw global inflows of $288 billion, a 96 percent jump over the whole of 2019.
So, while the coronavirus pandemic brought on major destruction on a global scale, it also accelerated a reallocation of money toward environmental, social, and governance assets worldwide. This was also driven by the availability of better ESG data, more ESG investment options, and a growing understanding among investors that ESG investments can provide better long-term returns.
In 2020, BlackRock already integrated ESG considerations across all its active and advisory portfolios. It also launched the Aladdin Climate initiative to better focus and calculate climate risk. And it introduced nearly 100 new ESG funds.
For 2021, it has even more ambitious plans.
Achieving a net-zero emissions economy by 2050 means that humans would not emit more carbon dioxide into the atmosphere than can be removed or neutralized. This would meet the goal of limiting global warming to below 2 degrees Celsius.
And while working on creating a cleaner world, BlackRock also wants to make sure investors capture the return opportunities that come with such a big transition. The asset manager’s plans focus on three major categories of initiatives.
Within its Measurement and Transparency action plan, the company plans to publish a variety of metrics on its funds and investments. This would include temperature alignment metrics for its public equity and bond funds, how much of the company’s assets are aligned with the net-zero goal, and how much of its assets it expects to be aligned by 2030.
Temperature alignment measures a portfolio holdings’ global temperature change based on new research and data. This is one way to measure the trajectory of a company toward a net-zero goal.
Within its Investment Management initiative, BlackRock plans to incorporate the impact of climate change into its capital market assumptions, which are used to construct portfolios. It also seeks to screen active portfolios for investments that carry significant climate risk. And it will continue to launch new investment products to give investors access to renewable-energy and climate-oriented investment options.
Behind this strategy lies BlackRock’s belief that “successfully avoiding climate change damages will help drive economic growth and offer investors better returns.”
Within its Investment Stewardship action plan, BlackRock intends to fulfill its fiduciary duty on behalf of its clients by asking that all companies disclose a business plan that is aligned with the net-zero goal.
Last year, the asset manager already screened 440 carbon-intensive firms in which its clients invest. These represent about 60 percent of the global scope 1 and 2 emissions. BlackRock voted on behalf of clients against 64 directors and 69 companies. It also put 191 companies “on watch,” which means that they risk getting votes against their directors in 2021 if they don’t show significant efforts toward limiting greenhouse emissions.
In 2021, BlackRock wants to expand its screening to 1,000 carbon-intensive firms that clients invest in. Those make up over 90 percent of the global scope 1 and 2 emissions. Scope 1 and 2 emissions include all direct emissions generated by company activities, as well as indirect emissions from the consumption of purchased energy.
Other initiatives include voting on shareholder proposals, as well as seeking clear and unified disclosure standards.
“As the net-zero transition reshapes the global economy, it will create a significant opportunity for investors. We are committed to providing (investors) with the solutions, tools, and the data to navigate this transition and to help (them) achieve the outcomes (they) seek,” concluded the letter.