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June 30, 2021

BlackRock delicately threads a needle on climate action

By GlobalData Thematic Research

BlackRock, the world’s largest asset manager, moved recently to extend its leadership on climate change by acquiring the modelling capabilities of Baringa. It will integrate them into its own Aladdin Climate platform. Baringa claims to have developed the “world’s leading climate scenario modelling and temperature alignment capability.”

Aladdin Climate, part of BlackRock’s broader Aladdin portfolio and risk management platform, calculates portfolio climate risk in portfolios and makes it visible to investors so they can reduce their exposure.

BlackRock has been accused of moving too slowly to address climate change. But the Baringa investment is the latest move in a broad strategy, unfolding for the last few years. It has talked with increasing volume about the urgency of the climate crisis.

CEO Larry Fink stated unequivocally in his January 2020 CEO letter that “climate risk is investment risk.” He framed the company’s strategy in terms of the goal established in the landmark Paris Agreement that the global economy must reach net-zero carbon by 2050 to ward off the most catastrophic effects of climate change.

BlackRock has to balance aims with responsibility

BlackRock’s 2020 actions included launching Aladdin Climate, reaching the goal to integrate ESG in all of its active and advisory portfolios, and launching nearly 100 new sustainability funds.

BlackRock 2021 commitments include:
• Publishing a temperature alignment metric for its public equity and bond funds;
• Publishing the proportion of assets under management currently aligned to net zero, and announcing which will be aligned to net zero in 2030 (when climate scientists agree the world must be halfway to net zero);
• Incorporating climate impacts into capital market assumptions;
• Applying “heightened scrutiny” to active portfolios to manage securities with significant climate risk;
• Helping clients go beyond risk mitigation to also target opportunities in climate change, for example, electric vehicles and energy-efficient housing.

Taken together, these actions and commitments show BlackRock weaving delicately to continue serving investors while also meeting a broader obligation to the environment.

On the one hand, it’s a no-brainer: climate change is existential. On the other, asset managers have a fiduciary responsibility to preserve clients’ wealth and face significant risk if they impose requirements in areas not yet governed by regulation.

The spectre of drought

Climate has long seemed a “future problem.” But now, heat waves, droughts, intense storms, and rising seas are constantly in the news. It’s easy to look just over the horizon to the prospects such as human climate refugees and violent conflict over scarce water.

Markets are fragile; asset managers must balance near- and long-term impacts. It won’t do to drop everything and focus only on climate. But to put off immediate, meaningful action will worsen the ultimate reckoning. It bears repeating: Even if we could flip some giant global switch and stop all carbon emissions, there is so much carbon already in the atmosphere that the Earth will continue warming for decades.

In driving a concerted all-of-BlackRock focus on reaching net-zero by 2050, Fink seems to have answered for himself the “grandchildren question”: What did you do about climate change? So many others have yet to ask it.