Sustainable investments that take into account climate change will deliver better returns, says BlackRock founder Larry Fink in his annual letter to chief executives .
The boss of the world’s largest fund manager warned: “In the near future—and sooner than most anticipate—there will be a significant reallocation of capital.”
“I believe we are on the edge of a fundamental reshaping of finance.”
BlackRock /zigman2/quotes/207946232/lastsale BLK -3.89% , which has around $6.84 trillion of assets under management as one of the top index fund managers, is the world’s most powerful investor and has come under recent criticism for not doing enough to address climate change .
In his letter Fink wrote:
• Climate change has become a defining factor in companies’ long-term prospects.
• The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.
• Investors are increasingly recognizing that climate risk is investment risk.
• Because capital markets pull future risk forward we will see changes in capital allocation more quickly than we see changes in climate itself.
BlackRock announced a number of initiatives which Fink said will place sustainability “at the center of our investment approach, including pushing companies for more transparency and disclosure of climate risks, and quitting investments in some thermal coal producers.
Fink’s letter comes as Australia continues to battle bush fires that have been burning since September claiming the lives of 28 people and destroying more than 2,500 homes. The extent of the damage from one of most severe fire seasons on record has caused governments to focus on their policies on climate change.
Climate change is one of the six key themes being discussed at the 50th annual meeting of the World Economic Forum at Davos next week. This will see world leaders meet with some of the biggest names in the corporate and investment world to answers: “How to mobilize business to respond to the risks of climate change and ensure that measures to protect biodiversity reach forest floors and ocean beds.”
Swedish climate activist Greta Thunberg will attend to urge CEOs to de-invest in fossil fuels. She has Germany industrial giant Siemens /zigman2/quotes/200873563/delayed DE:SIE -3.29% in her sights, which has won a rail contract to link an Australian coal mine to a coastal port to help it export more fossil fuels. Siemens chief executive Joe Kaeser is attending Davos.
Fink who wants to grow the firm’s sustainable assets from $90 billion to $ 1trillion over 10 years wrote: “As a fiduciary, our responsibility is to help clients navigate this transition. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors.
“And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”
Watch: Larry Fink on market timing
Fink explained over 40 years of his career in finance he has witnessed a number of financial crises and challenges—the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis.
Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature.
“Climate change is different,” he wrote. “Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”