BlackRock is not the ‘environmental police’

Wealth managers love Black rock are not “the environmental police,” Larry Fink said in his annual chairman letter to investors, published Wednesday.

“As I have consistently said for many years, it is for governments to make policy and legislate, not corporations, including asset managers, to be the environmental police,” Fink wrote.

But BlackRock takes its role as a fiduciary for customers incredibly seriously, the letter shows. To do that job properly, BlackRock must monitor the risk that climate change poses to financial assets.

“Investing for the long term requires a long-term view of what will affect returns, including demographics, government policies, technological advancements and the transition to a low-carbon economy,” Fink wrote.

“For years we have considered climate risk as an investment risk. We still do,” Fink said.

Fink has become a target for Republican lawmakers who view environmental, social and governance (ESG) investing as a proxy for financiers seeking to impress their political views.

For example, in August 2022, Texas Comptroller Glenn Hegar targeted BlackRock and placed the asset manager on a list of financial firms that “boycott energy companies.”

In his annual letter, Fink highlighted the ways climate change is already affecting financial markets and the economy.

“Everyone can see the impact of climate change in the natural disasters in California or Florida, in Pakistan, across Europe and Australia, and in many other places around the world. There are more floods, more wildfires and more intense storms. In fact, it’s hard to find a part of our ecology – or our economy – that is unaffected,” Fink wrote. “Finance is not immune to these changes. We are already seeing rising insurance costs in response to changing weather patterns.”

Natural disasters have cost insurance giant Munich Re $120 billion by 2022, which Fink called “a once-unthinkable figure.”

The federal government’s National Flood Insurance Program, which underwrites many insurance policies in Florida, is $20.5 billion in debt and has had to borrow money from the U.S. Treasury, Fink said.

Blackrock has customers who are willing and unwilling to invest in the energy transition, says Fink, and Blackrock serves both types. But if clients want to understand how climate risk will affect their investments, Blackrock will provide that information.

“It is not the role of an asset manager like BlackRock to drive a particular outcome in the economy, and we do not know the ultimate path and timing of the transition. Government policy, technological innovation and consumer preferences will ultimately set the pace and scale of decarbonization,” Fink wrote. “Our job is to consider and model different scenarios to understand the implications for our clients’ portfolios.”

That’s why Fink has pushed for companies to disclose climate risks. More than half of the S&P 500 voluntarily report their own Scope 1 and 2 emissions, Fink said.

Scope 1 emissions are those greenhouse gases that come from assets owned or controlled by an organization, such as boilers, furnaces or vehicles, according to the US Environmental Protection Agency. Scope 2 emissions are the greenhouse gas emissions associated with the electricity, steam, heat or cooling used by an organization.

Scope 3 emissions, which are much more difficult to track, are emissions that result from the assets in an organization’s supply chain.

While Fink argues for the importance of measuring climate risk in business, he also says that oil and gas are needed to meet energy needs in the short term. BlackRock is investing in natural gas pipelines, with efforts to reduce methane emissions from those natural gas pipelines, Fink said.

At the same time, BlackRock offers investors the opportunity to invest in clean technology, such as carbon capture storage pipelines and technology that converts waste into natural gas, he said.

“I wrote last year that the next 1,000 unicorns will not be search engines or social media companies. Many of them will be sustainable, scalable innovators – startups helping the world decarbonise and make the energy transition affordable for all consumers. I still believe that Finn writes. “For customers who choose, we connect them to these investment opportunities.”