Sustainable investing and BlackRock – a good news story

Saragossa

Sustainable investing isn’t new, but it’s become a very hot topic. As technology has evolved, there’s growing transparency in business.

That means the public has a heightened awareness of unethical behaviors. And, when the public see something they don’t like, they tend to speak out about it.

This is slowly creating ripples in the delicate ecosystem of our financial markets. And, as the public moves, the market responds.

What is sustainable investing?

Sustainable investing means investing with the future in mind.

Think ‘fewer fossil fuels, more renewable.’ Investments concerned with ‘environmental, social or governance’ themes might also be considered sustainable.

While this is new to some, others have been on this train for a long time. One good example is Newton Investment Management, who’ve been committed to sustainable and responsible investment since the 1970’s.

Before they commit to investing in any business, they look at their environmental impact, social standards and leadership ability, and choose their clients based on these evaluations.

The case of BlackRock

Larry Fink, CEO of the world’s largest Asset Management firm, Blackrock, announced that the firm will now place sustainability at the center of their investment strategy.

He acknowledges it won’t happen overnight, but has called for “accountable and transparent capitalism”.

You can read his thoughts here: https://www.blackrock.com/uk/individual/larry-fink-ceo-letter.

While this is a good start, there’s still lots to do. According to the UN Principles for Responsible Investment’s (PRI) annual assessment for 2019, fewer than 25% of Investment Managers achieved the highest rating in all five areas assessed, including equities and fixed income.

But many are hoping that the positive shift from BlackRock will help to bring sustainable investing into the mainstream.

Are BlackRock simply jumping on a bandwagon?

Where ethics and the environment are concerned, does it matter?

In the past, BlackRock has drawn criticism for its record on climate resolution. It’s not a secret that, as recently as November, activists were protesting outside BlackRock’s offices, dumping ashes nearby.

But BlackRock are doing more than paying lip service, and they probably shouldn’t be met with derision for listening to public opinion and using it to inform their decisions.

From their managed portfolios, they’ll ditch companies who gain more than 25% of their profit from coal, and they plan to launch products that help investors screen for fossil fuels in potential investments.

New standards also mean companies have to disclose their climate risks to BlackRock, as they’ve joined the ‘Climate Action’ group of investors.

What about their current investments?

BlackRock say they now believe sustainable investing is “the strongest foundation for client portfolios going forward.”

Despite this, BlackRock are still large investors in some of the world’s biggest polluters.

Only 30% of their portfolios are actively managed – the remaining 70% are passively run, meaning BlackRock owns all the stock in a specified index. This will need to be addressed as they move forward with this commitment.

But, at the time of writing, it’s hardly surprising a lot of their investees are still in this position, as BlackRock have only just announced their new stance.

At this stage, what’s more important is their willingness to help those who are slow to transition to this new way of being.

How will change happen?

If BlackRock fully embrace their new stance, they’ll be less inclined to vote for boards who don’t share their interest in sustainability. Good news for those who serve our public and planetary interest.

And what about their competition? The people currently watching with intrigue.

If this pays off for BlackRock, we could see an attitude shift leading to a domino effect. Which means a lot more funds choosing sustainable models – because it’s the right thing to do, but also, because it’s where the money is.

If that happens, we all win. So, here’s hoping they succeed..

Sources:

https://www.theguardian.com/business/nils-pratley-on-finance/2020/jan/14/blackrock-now-needs-to-use-its-voting-clout-to-fuel-sustainable-investing

https://www.thesimpledollar.com/financial-wellness/a-guide-to-sustainable-investing/

https://www.theguardian.com/environment/2020/jan/15/blackrock-climate-change-environment-divestment-coal