In a letter to clients this week, BlackRock noted that climate risk is an investment risk that will impact the long-term performance of portfolios and promised to take a stronger stance on climate change.
The asset manager has drawn a line in the sand and says that sustainability should be its new standard for investing.
While BlackRock has been deepening the integration of sustainability into technology, risk management, and product choice over several years, it has now announced plans to go even further by exiting thermal coal assets.
“Thermal coal is significantly carbon-intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts,” the group said.
“With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.
“As a result, 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 per cent of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.”
As part of its process of evaluating sectors with high ESG risk, BlackRock said it will also closely scrutinise other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance.
In addition, BlackRock’s alternatives business will make no future direct investments in companies that generate more than 25 per cent of their revenues from thermal coal production.
The move marks a major turning point for BlackRock, which has been heavily criticised for its extensive fossil fuel holdings.
Late last year, the UK-based think tank InfluenceMap released a report that showed BlackRock was the leader of the asset management pack in terms of fossil fuel ownership. As at June 2018, the oil, gas and thermal coal reserves controlled by fossil fuel producers it holds represented an aggregated 9.5 gigatonnes of carbon dioxide emissions equivalent, with just under half of these emissions in thermal coal.
This figure of 9.5 gigatonnes is equivalent to 30 per cent of 2017 total global energy-related carbon emissions for 2017, according to the International Energy Agency.
“Among the 10 asset management groups with the largest aggregate fund AUM, BlackRock holds the most coal-intensive portfolios,” the report said.
The research introduced a thermal coal intensity (TCI) metric, defined as the tonnage of thermal coal held per US dollar million in assets under management (AUM).
BlackRock scored a TCI of 571 in its $2.3 trillion of funds – 50 per cent higher than the benchmark average for the world’s 60,000 largest funds with $36 trillion total AUM tracked by the research.
“However, there are key differences between BlackRock’s passively and actively managed funds,” the report noted. “The group’s passively managed funds show a thermal coal intensity in 2018 of 680 t/US$m AUM, while its actively managed funds show a much lower TCI of about 300 tonnes/$m AUM, well below the global fund benchmark.”
Like BlackRock, French investment giant AXA recently vowed to exit the coal industry as part of a tougher climate strategy. However, the InfluenceMap report found that the asset manager has actually more than doubled its thermal coal holdings within its $350 billion portfolio of listed funds in the time period 2016-18, adjusted for inflows.
“Most of this increase is accounted for by AXA’s majority-owned subsidiary AllianceBernstein acquiring stakes in US coal companies Peabody Energy and Arch Coal during the time period,” the report noted.