ESG is at a “hinge moment” as it becomes a key part of any resilient portfolio in the face of climate change, according to global asset manager BlackRock.
In January, BlackRock – the largest asset manager in the world, with more than $7 trillion in AUM – joined the activist investor group Climate Action 100+ and ended its active investment in companies that derive more than 25 per cent of their income from thermal coal. The move was met with approval from both inside and outside the financial services, but BlackRock says that it’s just the start.
“This has been an evolution that will play out into perpetuity,” Ben Powell, chief investment strategist for Asia Pacific, BlackRock Investment Institute, said at a media briefing on Friday.
“I think this is a societal conversation of which the asset management industry, and a single asset manager – even the world’s largest – is a very small part of. But it’s a conversation we want to be part of, and within our industry, we want to be a leader in that conversation.”
Mr Powell believes that ESG is now at a “hinge moment” as it moves from a fringe consideration to a key part of any resilient portfolio, and that “the future is now” when considering the risks stemming from climate change.
“Will the world see a 2 degree increase in global temperatures through to 2050? If you’re buying or selling a 30-year mortgage, 2050 is now. When we’re thinking about a resilient portfolio, even in 2020, you have to be thinking about the risks out over the next several decades.”
While BlackRock has ceased active investment in thermal coal producers, most of the money it manages is wrapped up in passive investments that track indexes. CEO Larry Fink has said that the company will be doubling its ESG ETF offerings and working with providers to expand and improve the universe of sustainable indices, and BlackRock has already started integrating those considerations into its operations.
“We have some processes where we’re using ESG factors to help deliver alpha,” said Michael McCorry, chief investment officer for BlackRock Australia.
“There’s other places where we’re just screening things out because there’s unacceptable risks, or working with clients. We’re upweighting some things and downweighting some things as you would through a more traditional risk lens.”
At least part of that process will involve developing stronger frameworks for reporting and communicating the importance of managing climate risk to end consumers and clients in a way that’s “meaningful”.
“It’s a journey we’re all on together, marching towards a more common understanding or common language that we can use when we’re talking about these products that will evolve through time,” Mr McCorry said.
“I think it’s pretty exciting.”