PublicationsWhen BlackRock chief executive Larry Fink says “climate change is front and centre”, the investment world listens.

That’s because BlackRock, with almost $9 trillion (close to R138 trillion) entrusted to it, is the world’s largest asset manager.

Annual letter

His annual letter to listed companies is widely read and quoted. In his most recent letter, Fink raises the prospect of active portfolios divesting from companies that didn’t commit to the achievement of net zero carbon emissions by 2050.

Where companies didn’t commit to net zero emissions, BlackRock would flag these holdings in both its active and index portfolios for potential exit because “we believe they would present a risk to our clients’ returns”, said Fink.  He noted that “companies with better ESG [environmental, social and governance] profiles are performing better than their peers”.

BlackRock is not alone. Fidelity, UBS and Schroders are among the world’s largest asset managers to have announced commitments to the cutting of emissions.

Passive investments

Fink expects a “tectonic shift” in passive investing once more public companies disclose their carbon footprint. This shift in finance won’t occur on asset management’s active side, which is already addressing the issue, but on the passive side after more companies release their mandatory disclosures.

ESG-based investing

The huge rise in ESG-based investing is funnelling money into companies that pay less tax and provide fewer jobs than many counterparts with lower ESG ratings. Assets under management in ESG exchange-traded funds jumped three-fold from just under $59 billion at end-2019 to $174 billion at end-2020.

The UK’s largest workplace pension schemes will have to comply with new mandatory requirements to take action on climate change.

Financial advisors face “high barriers” when working to integrate ESG investing because third-party tools are inadequate. It was difficult for advisors to ascertain the extent to which ESG factors are really embedded in asset managers’ investment processes and wider cultures.

The single most salient feature of these exchange-traded funds is that they favour machines and intangible assets over humans.