16th January 2020 – BlackRock released two letters earlier this week: Larry Fink’s annual letter to CEOs, and an Open Letter to our Clients from the Global Executive Committee.

• In his CEO letter, Larry writes about how sustainability, and most significantly climate change, is reshaping finance and investing.
• In his letter, he writes that climate change has become a defining factor in companies’ long-term prospects and that the evidence on climate risk is compelling investors to reassess core assumptions about modern finance.
• It is BlackRock’s view that as more investors recognise that climate risk is investment risk, we will see a profound reassessment of risk and asset values. And that we are on the verge of a significant reallocation of capital.

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.

That’s why the firm is making sustainability our standard for investing.

In an Open Letter to our Clients, our Global Executive Committee explains a set of actions we are taking to integrate sustainability more deeply into all that we do, including:

• Deepening the integration of sustainability across our investment and risk management platform by formally integrating ESG into our Risk and Quantitative Analysis Group as a risk to be assessed with the same rigor as traditional measures such as liquidity and credit risk; strengthening the integration of sustainability factors in our investment process; and reducing ESG risks in our active strategies, by exiting certain sectors.
• We are continuously evaluating the risk-return profile posed by specific sectors we invest in as we seek to minimise risk and maximise long-term return for our clients. Thermal coal production is one such sector we have closely. Based on our review, 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.

• Expanding our sustainable offerings by doubling our ESG ETF offerings (to 150), including sustainable versions of flagship index products so that clients have more choice for how to invest their money; introducing new fossil-fuel screened funds; and building new sustainable active strategies focused on the global energy transition and impact investing.

• Increasing our focus on sustainability in our Stewardship activities by mapping our priorities to specific UN Sustainable Development Goals as well as more regularly disclosing the companies we engage with and the topics of our discussions.

We have engaged with companies on sustainability-related questions for several years, urging management teams to make progress while also deliberately giving companies time to enhance disclosure consistent with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). This should include the company’s plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realised, as expressed by the TCFD guidelines. 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. In addition, just last week we joined Climate Action 100+.

Sustainability is becoming increasingly material to investment outcomes, and as the global leader in investment management, our goal is to be the global leader in sustainable investing. We are also setting a goal of increasing our sustainable AUM more than tenfold this decade – from $90 billion today to over $1 trillion.

Our role as a fiduciary is the foundation of BlackRock’s culture and this is reflected in the commitments we are making today.

You can read both of these letters by visiting www.blackrock.com