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World's Largest Asset Manager BlackRock To Build Around Sustainability In Investments

Jan 14, 2020
Originally published on January 14, 2020 3:05 pm
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The world's largest asset manager is putting climate change at the center of its investment strategy. BlackRock oversees almost $7 trillion in investments. The founder and CEO, Larry Fink, made the announcement in his annual letters to clients and chief executives of the world's largest companies. He said BlackRock will exit investments that present a high sustainability-related risk. He also said the company would launch new investment products that screen for fossil fuels.

I asked Larry Fink about his message to investors who might say, that's all well and good, but you're not maximizing my profits.

LARRY FINK: Well, in the United States, BlackRock as a fiduciary has to live under that mandate. That is - the ERISA rules in the United States that the No. 1 responsibility is to maximize return. This is one of the reasons why the United States is actually behind many places in the world that places sustainability much more prominent. We have also made a statement that we believe a sustainable portfolio will outperform or, indeed, will maximize your profits over a long period of time.

SHAPIRO: There are real questions about how you define a sustainable portfolio. For example, you've announced that BlackRock will sell out of all companies that get more than a quarter of their sales from thermal coal. That still leaves some of the biggest coal producers in your portfolio because they do a lot of other things, too. So tell me about how you made this call.

FINK: Well, coal is a very small component of any investment universe. It's a very small fraction. The principal standard that most people use is a standard of 50% less. We brought that down to 25% less.

But let's be clear. Coal is - it represents a small component of the investable universe. I think the other things that we announce - creating more products, more indexes that have sustainability as a key characteristic - is going to be a lot more important than whether we invested in coal companies that have 25% less of their revenues in coal. The key characteristic is making sure that more and more investors use sustainability as a metrics to look at investing. And we will create the tools. We will have the tools to help people guide that.

SHAPIRO: Climate activists have staged protests outside of BlackRock's headquarters. Members of Congress have urged you to do more. Tell us about why you're making this decision now.

FINK: We are doing this on behalf of clients. I have not done this with the idea of focusing on any activist groups or any other voice. We are a voice to the investors. Our job is to be speaking on behalf of our investors. And I wrote this letter not as an environmentalist. I wrote this letter as a capitalist.

SHAPIRO: Was there one event or conversation or news story that really flipped the switch for you, that made you think, this is a moment we have to fundamentally change course?

FINK: No. It was really the sum of all my conversations in every part of the world with our clients and witnessing their questions about this. And it really became very clear to me - as somebody who'd been in finance for, you know, 44 years, it's very clear to me that we're at a point now where more and more people believe in the science of climate change. More and more people are worried about their portfolios and how their portfolio is going to be performing over a 10-year horizon. Some cities that have consistent problems related to flooding or fires - those cities are going to have a harder time financing their debt over a longer horizon.

I raise a question about the role of a 30-year mortgage in areas where climate change could have a serious impact over time. Would you adequately issue a 30-year mortgage if you can't get proper private flood or fire insurance? And so this is how we believe we're seeing capital changing. If more and more people believe that climate change is going to impact their valuations of their portfolios, they're going to shape their portfolio that it's going to have less risk. We want to design better techniques, better analytics to help all our investors on how they can be better prepared for the eventuality of physical change in the world.

SHAPIRO: Larry Fink is founder and CEO of BlackRock. Thanks for speaking with us today.

FINK: Thank you. Bye-bye, now.