The world's largest cash supervisor says a sustained surge in sustainable funding continues and urges extra disclosure
The world's largest asset manager is urging companies to disclose how they will survive in a world with net zero greenhouse gas emissions.
""Because better disclosures about sustainability are in the interests of both companies and investors, I urge companies to act quickly instead of waiting for regulators to impose them, "BlackRock CEO Larry Fink said Tuesday in his annual letter to the CEOs.
The corporate world is awakening to the fact that so-called ESG factors – environmental, social and governance metrics – pose a financial risk and that companies that fail to adapt are left behind.
Indeed, Fink said in his letter that "the tectonic shift that we are seeing will accelerate further as investors focus their holdings on companies that are geared towards sustainability".
"More and more people understand that climate risk is an investment risk. … If finances really understand a problem, we will take this future problem and move it forward. We saw that in 2020 and we see that now." Fink said Tuesday on CNBC's "Squawk Box".
"Inflows into sustainability funds are already growing in January and are not shrinking. This will continue into 2021," he said.
ESG investing spread during the bull market boom, leading many to view it simply as a bull market phenomenon. With stocks selling off as the coronavirus upset the markets in March, investors piled into sustainability-focused funds. Many of them outperformed their peers.
Last year, mutual and exchange-traded fund investors worldwide invested $ 288 billion in sustainable assets from January to November, up nearly 100% from 2019, according to BlackRock.
"They [investors] are also increasingly focusing on the significant economic opportunities the transition offers and how they can be implemented fairly and fairly," Fink wrote in his letter.
"No issue is higher on our customers' priority lists than climate change," he wrote. "They ask us about it almost every day."
Amid the surge in ESG fund flows, some have said they have reached bubble-like territory and that valuations are starting to appear stretched for some of the most popular pure names related to the energy transition.
But Fink said that as with any new trend, there will be some winners and some losers. Comparing the sector to tech companies over the past 20 years, he found that they ultimately led to their returns.
This is not the first time Fink has sounded the alarm about the role of the corporate world in climate change.
In his 2020 letter, he said a financial reshuffle was underway and that the company was revising its investment strategy to put sustainability first.
His 2019 and 2018 letters also focused on the idea of stakeholder capitalism, or that corporations should seek a greater purpose than filling their shareholders' pockets.
Critics of ESG investing argue that it is difficult to rate a company because some of the metrics are subjective and the data as a whole is not disclosed.
In order to achieve greater transparency, BlackRock is asking companies to indicate how their business model will be compatible with a net-zero economy.
In a separate letter to clients, BlackRock said it will help investors identify the leading companies by applying an "enhanced auditing model" to its actively managed portfolios. The company will also create a "focus universe" of holdings that are particularly vulnerable to climate-related risks.
With $ 8.68 trillion in assets under management, BlackRock's words and actions carry weight, and some argue that the company's push toward a greener future is too little and too late.
Of course, with its myriad of offerings, including ETFs tracking the S&P 500, difficult to unilaterally sell stocks of companies that engage in activities that may not be in line with a client's values.
"It is encouraging to see that BlackRock is finally ready to remove companies from active funds because the climate is moving too slowly," said Gaurav Madan, senior forest and land activist at Friends of the Earth. The environmental group is one of the partners in BlackRocks Big Problem, a global network of NGOs and financial agents that pressure asset managers to change.
"This is a welcome change in BlackRock's strategy," said Madan. "But this threat alone is not enough in this phase of the impending crisis."