In June 2021, BlackRock – the world’s largest asset manager – announced that it had acquired Baringa’s Climate Change Scenario Model which will be integrated into BlackRock’s risk management system, Aladdin, significantly bolstering the company’s climate change offering.
BlackRock CEO Larry Fink has been outspoken on climate change with his view that climate risk is investment risk. The acquisition of Baringa’s Climate Change Scenario Model will add significant credibility to this position.
BlackRock has been urging the companies in its portfolio to articulate how they are aligning with a scenario in which global warming is limited to well below 2° C. Beyond just extolling the importance of climate risk, BlackRock has begun using its financial clout to drive action, voting against the management of companies it deems are making insufficient progress on climate change.
BlackRock is one of the loudest voices in climate change
During the 2020 shareholder proxy season, BlackRock voted against the management of 53 companies over climate concerns. Most recently, BlackRock backed a shareholder resolution calling for BP to act faster on climate change.
Armed with a new climate scenario model, we should expect BlackRock to up the ante on its voting action and hold firms accountable to their climate commitments and pleasing critics who accuse the firm of voting against shareholder motions that directed boards to take action on the climate crisis.
The deal comes at a promising time for climate disclosure
Recently, there has been high profile moves to improve the transparency of climate-related exposures. In early June, the Group of Seven (G7) backed actions to force banks and companies to disclose their exposure to climate-related risks, according to the Task Force on Climate-related Financial Disclosures (TCFD).
By acquiring Baringa’s Climate Change Scenario Model, BlackRock is looking to get ahead of the game and become the go-to for climate disclosure guidance as Baringa’s solutions support TCFD reporting.
Governmental action has not been sufficient to establish a path to net-zero carbon emissions, and instead, a market-based mechanism is emerging. Driven by the financial sector and the actions of BlackRock, climate action is becoming a competitive differentiator. Companies taking climate action can expect to attract more – and more loyal – customers, partners, and employees. Other things being equal, this will drive profits and win favor with investors. These interlocking forces create a climate action feedback loop that rewards and reinforces corporate climate action, prompting more of it.
Transparency is central to success of the climate action feedback loop
The climate action feedback loop requires transparency to be fully effective. The requirement for companies to report in accordance with TCFD will go a long way to increase corporate transparency and strengthen the feedback loop.
BlackRock, strengthened by its acquisition of Baringa’s Climate Change Scenario Model will be able to better understand the climate impact of companies in its portfolio and make more informed voting decisions against corporate management. ESG ratings will become more accurate and less conflicting, meaning that all key stakeholders – consumers, partners, employees, and investors – can make informed decisions about which companies to support.