Blackrock, the world’s largest asset manager, recently announced that it would halt investment in companies that did not show enough efforts in addressing climatic risks.
In July, Blackrock identified a watch list involving 244 companies that either had not achieved sufficient progress in curbing climate change, or had failed to disclose their climate risks adequately enough to their shareholders. In particular, 53 of the companies had their management board directors voted against by Blackrock, while Blackrock stated that it would punish the remaining companies if no further actions were taken in advancing their practices and disclosures regarding climate change. Additionally, Blackrock announced its plan to stop financing companies that generated more than 25% of their revenues from thermal coal production by mid-2020.
Blackrock’s ESG measures entail profound implications. Within the industry, Blackrock would pressurize other large financial firms to follow suit in their ESG practices, since otherwise they would risk losing competitiveness. Being a well-recognized industry giant, Blackrock is often regarded as an exemplar, implying that its attitudes towards ESG would significantly influence that of its counterparts and could potentially drive a ripple effect across the whole business sector.
The new initiatives also demonstrated Blackrock’s efforts in taking real actions rather than just saying without doing. A few years ago, it might have been normal for companies to subtly put off ESG commitments without any consequences; yet today, companies in the watch list could no longer shun ESG responsibilities since there is an urgency for actual changes to be undertaken, and the risk of losing investment from Blackrock would translate into serious business obstacles. Companies are expected to not simply adhere to regulations in disclosing ESG matters on paper, but to go beyond compliance levels and take real actions in order to gain recognition.
Early this year, BlackRock announced a number of initiatives to place sustainability at the center of its investment approach, including making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers. Blackrock also joined the Climate Action 100+ initiative in demanding necessary actions to be taken by the world’s largest corporate greenhouse gas emitters.
The financial relevance of ESG has been increasingly recognized, accompanied with a gradual shift in investors’ focus by perceiving ESG as an integral part of investment decisions. Climate change is no longer simply an environmental or social concern, but it incurs significant investment risks that should be given much attention in the business world.
Despite the detrimental impacts caused by COVID-19 on many asset managers, Blackrock experienced marginal effects and demonstrated how it was possible to pursue ESG excellence without compensating financial returns. As previous allegations of plausible financial trade-offs involved in enhancing ESG performance were proved wrong, the tide has turned, making ESG the “new standard of investment” as BlackRock’s Global Executive Committee has asserted in their client letter this year.
