Climate change: crisis or opportunity?
Larry Fink, Chairman and Chief Executive Officer of BlackRock, one of the largest institutional investors worldwide, addresses his traditional annual letter to Chief Executives of other companies. The letter describes the BlackRock´s long-term value creation drivers such as capital management, long-term strategy, purpose and climate change strategy, and analyzes the most significant events of 2020 and future prospects that will be relevant to make its investment decisions.
This year´s letter pays great attention to climate change and the transition to a lower emissions economy. According to Larry Fink, the pandemic has not diverted attention from these issues since "it has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully".
In this sense, the letter highlights the following aspects:
- Investment opportunity: Climate change and the economic opportunities arising from the transition to a lower emissions economy is one of the issues that most interests its clients as "climate transition presents a historic investment opportunity".
- Reallocating capital towards sustainable assets and accelerating the transition towards a lower carbon emissions economy: “From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019”. In his opinion, this trend will be accelerated in 2021.
- Companies should have a strategy to face climate change and the transition to a lower emissions economy: In his opinion “as the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero economy “will be rewarded by their stakeholders.
- Information based on the standards of the Task Force on Climate Related Disclosures (TFCD): Blackrock considers essential to make investment decisions to count with high-quality public information that allows the analysis of risks and opportunities and the long-term strategy of companies to face climate change.
- “Sustainability premium”: The most sustainable and connected to stakeholders companies, have outperformed and delivered better returns than their peers during the Covid-19 crisis. “During 2020, 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks”. This year Blackrock will pay special attention to the human resources strategy of companies in relation to "their long-term plans to improve the issues of diversity, equity and inclusion".