The CEO of a set of investment funds valued at more than $6 trillion has authored letters to clients and to global CEOs stating, “Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors.”
The letters from Larry Fink, chairman and CEO of New York-based BlackRock, do not mention the word “recycling.” However, the letter to CEOs uses the phrase “the sustainability of its supply chain” when pointing to investment criteria for companies owned by BlackRock or under consideration.
Regarding climate change and its risks, Fink writes early on in his letter to CEOs that “awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” He adds, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
Fink’s letter to BlackRock clients provides additional detail into what the shift in focus will entail, including the intention in 2020 to offer “sustainable versions of our flagship model portfolios.” Fink says BlackRock will use “environmental, social, and governance (ESG)-optimized index exposures in place of traditional market cap-weighted index exposures” for those funds.
The CEO indicates ESG analysis will be used from top to bottom by all fund managers and analysts. “In 2020 we will continue to build additional tools, including one to analyze physical climate risks and one that produces material investment signals by analyzing the sustainability-related characteristics of companies,” writes Fink.
Leaders of environmental advocacy groups—often critical of the perceived role of institutional investors in mining and deforestation efforts—have expressed a combination of optimism and skepticism in reaction to the letters.
“As the biggest financial institution in the world, BlackRock’s announcement today is a major step in the right direction and a testament to the power of public pressure calling for climate action,” says Sierra Club campaign representative Ben Cushing.
Cushing and other advocacy group spokespersons also typically issued an additional sentence or two of skepticism, such as this one from Moira Birss of Oakland, California-based Amazon Watch: “This announcement is a major step in the right direction for BlackRock; however, it still leaves questions about how it plans to address the fact that it is the world’s biggest investor in deforestation.”
According to a breakdown of BlackRock’s stock holdings as of the end of 2019’s third quarter, its five largest investments were in Microsoft, Apple, Amazon, Facebook and JP Morgan Chase.
BlackRock at that time also had $10 billion or more invested in several companies with a considerable consumer product or retail packaging footprint, including Procter & Gamble, Johnson & Johnson, Home Depot, Coca-Cola, PepsiCo, Alibaba, McDonalds and Wal-Mart. The firm also held $3.8 billion in Waste Management Inc. stock as of October 2019.
In the manufacturing and basic materials sectors, BlackRock in late 2019 held from $3 billion to $10 billion in stock in several companies, including: Honeywell, 3M, General Electric, Caterpillar Inc., Newmont Corp., Kimberly-Clark, General Motors, Dupont, Illinois Tool Works (ITW) and Deere & Co.
Regarding its prior sustainability efforts, on BlackRock’s website it refers to receiving LEED (Leadership in Energy and Environmental Design) accreditation for office space in India, and to other green building and energy saving projects.