Graeme Wearden 

BlackRock promises climate action, but Extinction Rebellion demands more – as it happened

Asset management giant promises to put environmental issues at the heart of its investment strategy
  
  

A sign for BlackRock Inc hangs above their building in New York.
A sign for BlackRock Inc hangs above their building in New York. Photograph: Lucas Jackson/Reuters

Summary

Finally, here’s Associated Press’s take on the BlackRock move:

BlackRock, the world’s largest asset manager, will make climate change central to its investment decisions.

Founder and CEO Laurence Fink, who oversees the management of about $7 trillion in funds, said in his influential annual letter to CEOs Tuesday that he believes we are on the edge of a fundamental reshaping of finance because of a warming planet.

Climate change has become the top issue raised by clients, Fink said, and it will affect everything from municipal bonds to long-term mortgages for homes.

The New York firm is taking immediate action, exiting investments in coal used to generate power, and it will begin asking clients to disclose their climate-related risks.

Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself, Fink wrote in the letter. In the near future and sooner than most anticipate there will be a significant reallocation of capital.

That shift is already underway.

Investors poured $20.6 billion into sustainable funds last year, nearly quadrupling the record it had set a year earlier, according to Morningstar. The industry has broadened in recent years, after starting with simple funds that bluntly excluded stocks deemed as harmful, such as gun makers or tobacco stocks.

Investors, particularly younger ones, increasingly say they want their money invested with an eye toward sustainability. Fearful of losing out on those dollars and the fees that they produce investment companies are rushing to meet the surging demand.

Fund managers increasingly say they consider environmental, social and governance issues in their broad investment strategy. It’s known as ESG investing in the industry, and it means fund managers measure a company’s performance on the environment and other sustainability issues along with its bottom-line financials when choosing which stocks to own.

ESG funds say such an approach can help investors returns, rather than just their consciences, because it can help avoid risky companies, and the big losses they may have ahead of them in the future. Companies with poor records on the environment are more likely to face big fines, for example.

If BlackRock really wants to make a difference on the climate emergency, it needs to pile more pressure onto the companies it invests in.

That means voting in favour of climate-friendly motions at AGMs, and voting against directors who don’t take the problem seriously enough.

George Hay of Reuters has a good take on this, here:

Fink’s most eye-catching shift is to change how BlackRock plans to engage with the companies it invests in, whether active or passive. From now on, it will be “increasingly disposed” to vote against directors at companies that are not doing enough. That includes those like Exxon Mobil which lobbyist CDP argues have been slow to explain how their balance sheets would be affected by higher temperatures.

BlackRock itself is evidence of what such a change can achieve. Fink’s greater focus on climate change owes much to the firm’s own clients – such as Japan’s huge Government Pension Investment Fund – shoving it in this direction. If Fink is serious about applying the same pressure on the companies BlackRock invests in, his 2020 letter may be seen as a watershed.

While environmental campaigners want more from BlackRock, investors such as Ross Gerber are applauding Larry Fink:

Full story: BlackRock says climate crisis will now guide its investments

Here’s our news story on BlackRock’s move into sustainable investing:

Here’s Thomas O’Neill, research director at data analysts InfluenceMap (who helped with our Polluters investigation recently) on BlackRock’s decision to shun thermal coal producers:

“This is a positive announcement in the move to make financing of thermal coal more costly.

The climate movement will be watching closely to see how BlackRock’s policy of scrutinizing other parts of the thermal coal value chain develops - critically, concerning utilities who continue to plan on new coal generation.”

Updated

Financial journalist Anne Ashworth reckons BlackRock has been bounced into action by the Greta effect:

BlackRock certainly has a lot of catching up to do.

As well as holding huge stakes in the fossil fuel industry, BlackRock has also dragged its feet on sustainability in the past, before now seemingly seeing the light.

The New York Times sums up the criticism:

BlackRock itself has come under criticism from both industry and environmental groups for being behind on pushing these issues. Just last month, a British hedge fund manager, Christopher Hohn, said that it was “appalling” of BlackRock not to require companies to disclose their sustainability efforts, and that the firm’s previous efforts had been “full of greenwash.”

Climate activists staged several protests outside BlackRock’s offices last year, and Mr. Fink himself has received letters from members of Congress urging more action on climate-related investing. According to Ceres and FundVotes, a unit of Morningstar, BlackRock had among the worst voting records on climate issues.

Extinction Rebellion: It's not enough

Extinction Rebellion aren’t very impressed by BlackRock’s move.

The activist campaign, whose protests have helped highlight the climate emergency, points out that Larry Fink’s group has endless billions invested in polluting companies.

It’s not always the case that something is better than nothing, particularly if it’s used to distract from the truth. And the truth is that the world’s biggest miners and polluters will not be losing any sleep over this.

BlackRock remains waist-deep in fossil fuel investments and the world’s top backer of companies that destroy the Amazon rainforest and ignore the rights of indigenous people. BlackRock can rest assured that we will continue to pile on the pressure until they act to protect our children and the natural world.

Back in October, The Guardian showed how BlackRock, Vanguard and State Street collectively held $300bn in fossil fuel investments.

My colleague Patrick Greenfield also highlighted that the companies had failed to support climate activists (something BlackRock is now pledging to address).

BlackRock and Vanguard opposed or abstained on more than 80% of climate-related motions at FTSE 100 and S&P 500 fossil fuel companies between 2015 and 2019, according to data provided by ProxyInsight.

The big three are among a number of asset managers that offer “climate-friendly” and “sustainable” investment funds that have substantial holdings in fossil fuel companies.

Author and journalist Andrew Ross Sorkin says Larry Fink’s move towards sustainable investment is a “watershed” moment:

BUT..... Bloomberg’s Mark Gilbert points out that BlackRock’s index-tracking funds aren’t involved. That means the trillions of dollars used for passive investing won’t be directed towards cleaner investments.

He writes:

BlackRock Inc., the world’s biggest fund manager with $7 trillion of assets, says it plans to “place sustainability at the center of our investment approach.” As environmental, social and governance issues become more pressing, especially for younger savers, it’s a savvy business move that will pressure its peers to follow suit.

But there’s a problem. With about two-thirds of the money it manages allocated to index-tracking funds, the issue of how to harness the resources in passive products — the bulk of which command fees that are too low to finance costly and time-consuming engagement with company boards — remains unaddressed.

Bloomberg’s David Fickling has a good theory about BlackRock’s move towards climate activism.

He reckons some CEOs are as scared about the climate emergency as anyone, but can’t reconcile it with their daily lives. This means they end up taking business decisions that make the crisis worse.

He cites Siemens’ refusal to abandon a contract to provide rail signalling at a new Australian coalmine, despite also pledging to become carbon neutral by 2030.

This prompted a long letter from Siemens CEO Joe Kaeser trying to justify the decision, in which he sound genuinely torn by the dilemma.

BlackRock’s move has been welcomed by the US senator for Hawaii, Brian Schatz:

BlackRock: We'll still hold hydrocarbon stocks for a while

Not everyone understands the importance of the climate emergency, of course.

If you want to keep putting money into fossil fuel producers, or other companies who contribute large CO2 emissions, BlackRock will happily invest it for you.

After all, it’s your money.

So after outlining its new commitment to sustainable investment, the company’s letter to its clients concludes by pointing out that the world will be burning hydrocarbons for some time.

We invest on your behalf, not our own, and the investments we make will always represent your preferences, timelines, and objectives. We recognize that many clients will continue to prefer traditional strategies, particularly in market-cap weighted indexes. We will manage this money consistent with your preferences, as we always have. The choice remains with you.

As we move to a low-carbon world, investment exposure to the global economy will mean exposure to hydrocarbons for some time. While the low-carbon transition is well underway, the technological and economic realities mean that the transition will take decades. Global economic development, particularly in emerging markets, will continue to rely on hydrocarbons for a number of years. As a result, the portfolios we manage will continue to hold exposures to the hydrocarbon economy as the transition advances.

Updated

ShareAction: BlackRock must do more

BlackRock’s decision to drop major thermal coal producers like hot potatoes is a blow to the fossil fuel sector, says Jeanne Martin, campaign manager at ShareAction, the responsible investment campaign group.

But, she insists Larry Fink and colleagues need to do a lot more to actually clean up the financial sector, and put pressure on banks:

“BlackRock’s coal divestment decision is yet another significant blow to the already dying market. Yet major banks like Barclays continue to prop up coal-heavy companies.

If BlackRock is serious about its commitment to phase out thermal coal, it should use its voting rights to get major coal financiers to do the same.

She also says Fink has been too secretive, given BlackRock’s massive influence:

While we welcome its commitment to improve transparency of its stewardship activities, for far too long the asset manager has kept everyone in the dark about the companies it was meeting with, the topics discussed, and most importantly the outcome of those engagements.

But we might not like what we see when we open the door on these activities: BlackRock’s current voting disclosures on climate issues give little comfort that it will vote in a manner fitting of the climate crisis.”

BlackRock’s pledge to become a more environmentally responsible investor has been welcomed by some campaigners.

Diana Best, senior strategist for the Sunrise Project, says Larry Fink’s decision is a “fantastic start”, which could spur rivals into action.

“BlackRock’s new initiatives match the size of the crisis we’re seeing 2020 and are the direct result of an outpouring of pressure from the global climate movement that has zeroed in on the company over the past year. Putting climate change at the absolute center of its business is the way every company should respond to this planetary emergency.

“BlackRock beginning its shift of capital out of fossil fuels, including today’s divestment of coal in its actively managed funds, is a fantastic start and instantly raises the bar for competitors such as Vanguard and State Street Global Advisors.

But Best also warns that BlackRock has more work to do:

Even with today’s announcements, based on its size BlackRock will still remain one of, if not the largest, investors in fossil fuels. So we will be looking for additional leadership from the company in, as Larry Fink said, ‘fundamentally reshaping finance to deal with climate change,” including additional shifts of capital out of fossil fuels.”

Sunrise is part of the BlackRock’s Big Problem campaign, which calls the company “the biggest driver of climate chaos you’ve never heard of”.

Updated

BlackRock is also promising to double the number of environmental, Social, and Governance-focused exchange-traded funds it offers.

It will add a ‘fossil fuel screen’ to allow investors to keep their money away from big polluters.

BlackRock is also (belatedly) promising to play a more active role in fighting the climate emergency, by joining the Climate Action 100+ campaign (announced last week)

It is also demanding that companies publish their plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized.

It threatens.....

Given the groundwork we have already laid and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management when companies have not made sufficient progress.

You can read Larry Fink’s annual letter to the world’s CEOs, warning about the climate emergency, here: A Fundamental Reshaping of Finance

BlackRock’s letter to clients, outlining its new pledge to sustainable investment, is here: Sustainability as BlackRock’s New Standard for Investing

Updated

BlackRock's plan to help fight climate emergency

How, exactly, will BlackRock clean up its act?

The investment giant has told clients this morning that it will make several major changes. Some will improve its own practices, and others will make it easier for people to choose environmentally-sustainable products.

  1. It will make sustainability a “standard offering” in its financial products. That means environmentally responsible versions of popular funds, including retirement products, and its iShares investing platform

  2. Its active investment managers will be held accountable for how they have managed exposure to environmental, social and governance issues (ESG). These risks will be treated with the “same rigor” as credit and liquidity risk

  3. It will reduce ESG risk from its active strategies, which currently manage $1.8 trillion of assets. That includes quitting thermal coal producers (as explained earlier).

  4. It will integrate new ESG assessment tools into its risk management platform, called Aladdin. It will also build new tools; one to assess physical climate risks and one to calculate the sustainability-related characteristics of companies.

  5. BlackRock will do a better job of showing investors the sustainability risks of their investments. By the end of 2020, it will show which controversial holdings are within its mutual funds, and report their carbon footprint.

Some journalists are questioning quite how significant BlackRock’s new environmental pledges will be in practice.

Neil Hume of the Financial Times reckons the new anti-coal policy won’t affect the world’s biggest miners. That’s because their coal production, although significant, is only a small part of their overall business.

Bloomberg’s Dani Burger points out BlackRock isn’t proposing ditching fossil fuel companies from its passive investment arm (tracker funds that model the broad stock market).

BlackRock’s new opposition to thermal coal, and the firms which burn it, could make it harder to invest in China.

China produced 44% of the world’s coal in 2016, according to data from the World Economic Forum.

BlackRock slams thermal coal

BlackRock is promising to ditch its holdings in any company that produces more than a quarter of its revenues from thermal coal.

Larry Fink says its active investment teams will shun major coal producers, due to the environmental damage they cause.

Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.

As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.

Fink adds that BlackRock will also “closely scrutinise” firms that are heavily reliant on thermal coal (which would include power companies and major manufacturers).

Updated

BlackRock: Young people will help reshape finance

BlackRock has been targeted by climate emergency activists in recent months, given it is a major investor in the fossil fuel industry.

Protesters, such as Extinction Rebellion, have urged the group to divest its investments in greenhouse gas emitters, and in companies who are chopping down the Amazon rain forest.

This message seems to have got through to BlackRock, which has noted that children and young adults are taking a key role in these protests.

Larry Fink says today’s activists are tomorrow’s business leaders and politicians (as well as savers who won’t want to invest in fossil fuel firms).

Young people have been at the forefront of calling on institutions – including BlackRock – to address the new challenges associated with climate change.

They are asking more of companies and of governments, in both transparency and in action. And as trillions of dollars shift to millennials over the next few decades, as they become CEOs and CIOs, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.

BlackRock is also firing a warning shot at business leaders, saying it will use its clout to vote them off their boards if they don’t take climate change seriously.

CEO Larry Fink writes:

We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable.

Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.

This is ironic, as BlackRock has previously been heavily criticised for failing to support shareholder motions on climate

BlackRock's track record on climate change motions

Fink: A reallocation of capital is coming.....

Investors around the world have woken up to the climate emergency, BlackRock says.

In today’s letter, Larry Fink warns that capital will be reallocated faster than many people think -- that’s a coded way of saying that certain assets prices are going to tumble.

He writes:

Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. Indeed, climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios. They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy.

These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

BlackRock: We're putting climate at heart of investment strategy

Breaking: BlackRock, the asset management titan, has announced it will put environmental sustainability at the core of its investment decisions.

In his annual letter to CEOs, just released, BlackRock CEO Larry Fink says the climate emergency is forcing investors to rethink their plans.

He writes:

Climate change has become a defining factor in companies’ long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

This move follows heavy criticism of BlackRock itself in recent years, as it is a major investor in oil, gas and coal.

So what will BlackRock actually do?

Fink identifies several measures, including lowering its exposure to fossil fuel companies - a major demand by environmental protesters.

He says BlackRock will:

  • making sustainability integral to portfolio construction and risk management;
  • 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.

Crucially, the company is talking about playing an active role in solving the climate crisis, telling shareholders:

BlackRock does not see itself as a passive observer in the low-carbon transition. We believe we have a significant responsibility – as a provider of index funds, as a fiduciary, and as a member of society – to play a constructive role in the transition.

Fink’s letter comes just days after BlackRock signed up to Climate Action 100+, a pressure group of investors who are pushing the world’s largest CO2 emitters to cut pollution.

Fink’s letter is online here. I’ll pull together more highlights and reaction now.

Updated

Here’s our latest story on the push to safe Flybe.

In the City, shares in UK gambling firms have fallen after they were hit with a ban on credit card payments.

The Gambling Commission has decided to block people from placing bets using credit cards, responding to concerns that vulnerable gamblers are being allowed to run up huge debts.

The culture minister, Helen Whately, says:

“There is clear evidence of harm from consumers betting with money they do not have, so it is absolutely right that we act decisively to protect them.

The prospect of losing a lucrative income stream from addicts has hit the sector. Shares in William Hill have dropped by 3.1% this morning, with Flutter (owner of Paddy Power) losing 1.6%.

China has also posted strong trade figures today,

Exports rose 7.6% year-on-year in dollar terms in December, up from a 1.3% decline in November. That’s stronger than expected.

Imports jumped 16.3% year-on-year, up from a measly 0.3% rise in November.

This is also fuelling hopes that China’s economy is picking up.

Yuan hits five-month high

China’s currency has hit its highest level since the end of July.

The yuan jumped by 0.3% to 6.8968 against the US dollar, on relief that relations with Washington are improving.

Investors are hoping that the Phase One trade deal will boost growth, alongside Beijing’s attempts to stimulate its economy.

Ironically, America’s decision to stop calling China a currency manipulator is also helping the yuan to strengthen.

China has welcomed America’s decision to stop labelling it as a currency manipulator.

Customs vice-minister Zou Zhiwu told reporters in Beijing that it was a “correct choice” (China had always insisted that the US was being unfair on this issue).

Separately, foreign ministry spokesman Geng Shuang said China would keep its currency ‘basically stable’.

Introduction: US drops 'currency manipulator' label ahead of China deal

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Peace is breaking out between the US and China in their long-running, damaging, trade dispute.

A high-level delegation of Chinese officials have landed in Washington, ready to put their signature to the Phase One deal agreed with the US.

The signing ceremony, scheduled for tomorrow, will allow Donald Trump to declare a victory -- and could eventually lead to lower tariffs on each country’s imports.

The preliminary deal doesn’t tackle some of the tough issues, but it does include a pledge for China to buy more US food, agriculture and seafood products, and to stop forcing US companies to hand over their intellectual property.

And in an important sign that relations are thawing, America is also stopping labelling China a currency manipulator. It no longer claims that Beijing keeps the yuan unfairly cheap to make its exports competitive, at the expense of rivals.

Treasury Secretary Stephen Mnuchin announced the change of policy, saying that:

“China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability

Kit Juckes of Societe Generale it’s an encouraging sign for investors:

The symbolic removal of the ‘currency manipulator’ tag from China has no great significance but it’s a reward for getting the ‘Phase 1’ trade deal over the line and markets are euphoric ahead of tomorrow’s signing ceremony.

The yuan is stronger, and is dragging trade -sensitive currencies with it.

Global stocks are also continuing to rally. The US stocks scaled new peaks last night, lifting MSCI’s All Country Index of stocks to a new record as well.


Also coming up today

UK regional airline Flybe continues to fight for survival, send ministers scurrying to fins ways to keep its planes in the air.

The latest rumour is that the government is considering cutting air passenger duty on domestic flights, or allowing Flybe to defer its bill, to provide the company with some breathing space.

Flybe continues to operate this morning, as the UK’s pilots union urges the government to do ‘whatever it takes’ to save the firm. Environmentalists, though, take another view....

It’s also a busy morning for corporate news. UK housebuilder Taylor Wimpey has reported a 5% increase in home completions in 2019, while retailer BooHoo posting a 44% surge in revenues over Christmas.

The agenda

  • 1.30pm GMT: US inflation for December. CPI is expected to rise to 2.4% year-on-year, from 2%
 

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