The world’s largest fund manager, BlackRock said it will make sustainability as its “new standard for investing.”
In his letter to chief executives, Chief Executive Officer Larry Fink said the investment risks presented by climate change are set to accelerate a significant reallocation of capital.
“Our investment conviction is that sustainability-integrated portfolios can provide better risk-adjusted returns to investors,” Fink said. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.”
The BlackRock Executive Committee said it did not believe “long-term economic or Investment rationale justifies continued investment” in the thermal coal sector.
The company is in the process of removing public securities of companies that generate more than 25% of their revenues from thermal coal production from their investment portfolios. They plan to accomplish this by the middle of 2020.
Also, BlackRock’s alternatives business will not make any future direct investments in companies that generate more than 25% of their revenues from thermal coal production.
In the letter, Fink said the company does not see itself as a passive observer in the low-carbon transition. “We believe we have a significant responsibility — as a provider of index funds, as a fiduciary, and as a member of society — to play a constructive role in the transition,” he said.
Moody Vice President-Senior Credit Officer and U.S. Coal Industry Analyst Benjamin Nelson commented on the potential credit implications for the coal industry of increased investor focus on sustainability. “We see an emerging credit issue for the coal industry regarding access to capital,” he said. “While an increasing number of banks and investment firms have signaled an intent to move away from coal over the past few years, a drop in coal prices is compressing cash flow generation and debt trading prices are meaningfully weaker today. We expect these developments will push coal companies to express more financial conservatism in 2020.”
