In an open letter to clients, the world’s largest fund manager has said that it will be exiting its investments in thermal coal producers by the middle of 2020 as it shifts its focus to sustainable investment.
BlackRock’s global executive committee has penned the letter, which indicated the fund manager’s commitments to ESG and core belief that “sustainability should be our new standard for investing”.
And so, moving forward, sustainability will be the “standard offering” in all BlackRock solutions.
It noted that over the past few years, more and more of BlackRock’s clients have focused on the impact of sustainability on their portfolios.
This shift has been driven by an increased understanding of how sustainability-related factors can affect economic growth, asset values and financial markets as a whole.
For BlackRock, “the most significant of these factors today relates to climate change, not only in terms of the physical risk associated with rising global temperatures, but also transition risk – namely, how the global transition to a low-carbon economy could affect a company’s long-term profitability”.
It cited the stance taken by BlackRock chairman and CEO Laurence D. Fink in his 2020 letter – that the investment risks presented by climate change are set to accelerate a significant reallocation of capital, which will in turn have a profound impact on the pricing of risk and assets around the world.
As well as iterating a reduction of ESG risk in active strategies, BlackRock’s letter announced an intention by the group to exit thermal coal producers to reduce its exposure to what it has considered as a “high-risk sector”.
It outlined thermal coal as significantly carbon intensive, becoming 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,” it informed its clients.
Not only is BlackRock in the process of removing public securities of companies currently generating more than 25 per cent of their revenues from thermal coal – a process it aims to accomplish by the middle of this year – it will closely scrutinise other businesses it deems heavily reliant on thermal coal as an input, and will make no future direct investments in companies generating more than 25 per cent of their revenues from thermal coal production.
The fund manager outlined its stance that companies and investors have a meaningful role to play in accelerating the low-carbon transition.
“BlackRock does not see itself as a passive observer in the low-carbon transition,” the letter continued.
“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,” the executive committee has noted.
nestegg recently published an op-ed on the issues around mining, politics and climate change currently facing Australia.
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