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BlackRock’s Uncomfortable Truth: Going Green Won’t Be Easy

Annie Massa
BlackRock’s Uncomfortable Truth: Going Green Won’t Be Easy

(Bloomberg) -- In a stroke, Larry Fink became one of the most powerful champions of green investing in global finance.

But behind his new sustainable-investing push at BlackRock Inc. lies an uncomfortable truth: going green won’t be easy or quick.

Today BlackRock funds hold a 6.7% stake in Exxon Mobil Corp., for instance, as well as 6.9% in Chevron Corp. and 6% in Glencore Plc. And, in all likelihood, they’ll keep holding them, for the same reason that BlackRock is so big and successful: two thirds of its roughly $7 trillion in assets are squirreled away in funds that passively track market indexes, rather than actually pick stocks or bonds.

Only last year, Fink became a designated villain of climate change, dogged by protesters pressing BlackRock to divest from fossil fuel companies and others that contribute to climate change. Tuesday’s announcement promptly drew praise from his former critics -- and raised the prospect that other money managers would soon follow suit.

While the move will draw more attention to environmental sustainability, the hard reality of passive investing may mean it’s as much about making a statement as taking immediate action.

“One of BlackRock’s many challenges is their heavy reliance on traditional indexes and how they address that in light of their new climate policy,” said Timothy Smith, director of environment, social and governance shareowner engagement at Boston Trust Walden, which manages $10 billion.

The biggest investors could once send a strong message to companies, forcing executives to sit up and listen: change your ways or we’ll sell our shares. Such pressure helped in divestment campaigns from apartheid-era South Africa to American college campuses where students object to how endowment money is allocated.

But in a period where index-tracking funds are rapidly accumulating assets, selling isn’t an option. That leaves companies such as BlackRock and rival Vanguard Group at the mercy of benchmark compilers including MSCI Inc. and London Stock Exchange Group Plc’s FTSE Russell unit.

As part of BlackRock’s plan, revealed by Fink in a letter Tuesday, it pledged to pressure index providers to expand their sustainable benchmarks. The changes also include doubling sustainable ETF offerings to 150, and exiting thermal coal producers for its approximately $1.8 trillion in active strategies.

“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote in his annual letter to corporate executives. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

Earlier in January, BlackRock joined Climate Action 100+, a group of more than 370 investment managers with a combined $41 trillion in assets that pressures greenhouse gas emitters to reform.

Fink is tackling the subject as asset managers come under greater pressure on sustainability, with BlackRock in particular facing increasing scrutiny for its behavior and voting record around environmental issues.

Groups including Amazon Watch, the Sunrise Project, and coalitions of youth activists and parents have all targeted the asset manager recently, asking for more action around climate change.

BlackRock’s size puts it in a delicate position: operating in more than 30 countries, and as one of the biggest holders of most U.S. publicly traded companies, its clients include large sovereign wealth funds, state pension plans and financial advisers with viewpoints that don’t necessarily align on what to do about climate change and social justice issues.

Smith of Boston Trust Walden said the fund firm could start creating its own indexes, which would give it gauges that meet its new criteria.

Diana Best, a senior strategist for the Sunrise Project, a non-profit that seeks to rally organizations to advocate for climate change, said that Fink’s letter and BlackRock’s business changes set a good example.

“BlackRock’s new initiatives match the size of the crisis we’re seeing,” Best said in an emailed statement. “Putting climate change at the absolute center of its business is the way every company should respond to this planetary emergency.”

--With assistance from Saijel Kishan.

To contact the reporter on this story: Annie Massa in New York at amassa12@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, David Gillen

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