BlackRock will double its ESG ETF offerings, dump investments in thermal coal and increase sustainable assets under management tenfold this decade. All this, just six months after it was revealed that BlackRock lost more than $133 billion by investing in fossil fuels.
It's all part of chair and chief executive Larry Fink's plan to transform the world's largest asset manager into THE global leader in sustainable investing.
Just six months ago a scathing report released by the Institute for Energy Economics and Financial Analysis (IEEFA) revealed the fund manager lost more than $133 billion (US$90 billion) by investing in fossil fuel-dependent companies over the last decade.
The IEEFA report also noted that only 0.8% of BlackRock's total portfolio was invested in ESG-oriented funds and criticised the board's ties to the fossil fuel sector.
In an open letter to other business leaders, the newly "woke" Fink likened climate change to the dot-com bubble and the global financial crisis... but worse.
"Climate change is different. Even if only a fraction of the projected impacts is realised, this is a much more structural, long-term crisis," he said.
"Companies, investors, and governments must prepare for a significant reallocation of capital."
Fink warned the financial sector of an incoming capital shift.
"If 10% of global investors do so - or even 5% - we will witness massive capital shifts. And this dynamic will accelerate as the next generation takes the helm of government and business," he said.
Fink said the financial sector had been slow to take notice of climate change.
"Last September, when millions of people took to the streets to demand action on climate change, many of them emphasised the significant and lasting impact that it will have on economic growth and prosperity - a risk that markets to date have been slower to reflect," he said.
"But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance."
And "reshaping" BlackRock certainly is...
The investment giant will double its environmental, social and governance (ESG) offerings to 150, including sustainable versions of its flagship index products. It will also introduce new fossil-fuel screened funds and build new sustainable active strategies focused on a global energy transition towards renewable energy sources and impact investing.
BlackRock will remap its priorities to better align with the United Nation's Sustainable Development Goals during its stewardship activities, reflective of the announcement last week that the firm had joined the Climate Action 100+.
The UN's goals challenge business leaders to commit $5-7 trillion in investments annually to address global challenges by 2030, while Climate Action 100+ encourages companies to disclose the impacts they have on climate change.
That's not all...
BlackRock has also committed to integrating ESG as a key risk to be assessed alongside liquidity and credit risk; strengthening the integration of sustainability factors in its investment process.
It will do this by exiting "certain sectors"; namely thermal coal production.
BlackRock will exit publicly-listed securities that generate more than 25% of their revenue from thermal coal production from its discretionary active investment portfolios, and by mid-2020, too.
It's not known how much of their portfolio is currently weighted by thermal coal production as much of BlackRock's assets passively track market indexes.
However, investment managers with more than $100 million in assets under management must disclose their US equity holdings in a quarterly 13F report to the Securities and Exchange Commission.
Data collated by Whalewisdom on BlackRock's actively managed 13F securities revealed the fund manager has a stake in several fossil fuel companies.
It owns more than 281 million shares in Exxon Mobil, with a value of $US19.9 billion. It also owns more than 130 million shares in Chevron, worth US$15.5 billion.
But what about coal, you may ask?
BlackRock owns more than 5.2 million shares in the biggest private-sector coal company in the world, Peabody Energy, worth nearly US$77 million, and 218,014 shares in BHP (listed on the NYSE, not ASX-listed shares) worth $10.8 million.
It's also important to note that Fink's letter only mentions changes to the firm's active investment portfolios.
As of September 2019, BlackRock had US$6.96 trillion in assets. About 27% of this is allocated to active strategies and 66% is in passive investments. Of these total assets, US$4.56 trillion is in passive investments. The firm generated US$51.5 billion in passive investments in the third quarter last year, compared to the US$741 million it made from its active investments. That's nearly 70 times more revenue in passive investments, which would have exposure to some not-so-ethical companies themselves.
BlackRock has also committed to increasing its sustainable assets under management by tenfold this decade; from US$90 billion today to over US$1 trillion.
BlackRock said these changes will help it to become the global leader in sustainable investing.
"Sustainability is becoming increasingly material to investment outcomes, and as the global leader in investment management, our goal is to be the global leader in sustainable investing," it said in a letter to clients.
"Where we have the greatest discretion - in portfolio construction, our active and alternatives platforms, and our approach to risk management - we will employ sustainability across our investment process.
"Where we serve index clients, we are improving access to sustainable investment options, and we are enhancing our stewardship to make sure that companies in which our clients are invested are managing these risks effectively. We will also work with a broad range of parties - including asset owners, index providers, and regulatory and multilateral institutions - to advance sustainability in finance."
So is this just another case of corporate greenwashing; a marketing strategy set to win over younger generations?
If BlackRock's climate stance influences other business leaders to make similar changes, it will be a win for the climate movement either way.