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BlackRock's Fink warns climate risk causing 'fundamental reshaping of finance'

The world's largest asset manager issued a stark warning that climate change will cause a near-term reckoning for the modern economy.

BlackRock Inc. Chairman and CEO Larry Fink urged chief executives around the globe to put climate consideration at the forefront of their operations ahead of what he described in his 2020 annual letter as a "fundamental reshaping of finance."

"Climate change has become a defining factor in companies' long-term prospects," Fink wrote in the letter, released Jan. 14. "In the near future — and sooner than most anticipate — there will be a significant reallocation of capital." BlackRock has a "responsibility" as a fiduciary to help clients work through this change, he added.

Alongside Fink's letter, BlackRock has elected to make sustainability a "new standard" within its own approach to investing through a series of proposals it rolled out Jan. 14.

The asset management giant, as part of those plans, will exit certain investments in publicly traded companies that generate more than 25% of their revenues from thermal coal production over the coming months.

BlackRock additionally plans to double the count of environmental, social and governance-focused exchange-traded funds it offers to 150 over the coming years, issue more robust disclosures about how it votes at shareholder meetings on certain proposals and take a more aggressive approach to voting against board directors and executives at companies that are not making strides on sustainability issues.

With nearly $7 trillion under management at BlackRock, Fink holds more sway over the rest of the corporate world than most other money management CEOs. The rise of passively managed investment vehicles such as index and exchange-traded funds has made BlackRock one of the largest shareholders in the world. Fink's annual letters have grabbed headlines in recent years, especially in 2018 when he encouraged executives to look beyond their bottom lines in search of a greater purpose within society.

The asset manager has faced criticism for its recent focus on ESG, however.

While its executives have publicly championed strong sustainability and governance practices, BlackRock has been found to have a spotty record when voting on ESG-themed shareholder proposals at its portfolio companies, while also retaining investments in the fossil-fuel industry. A 2018 report found that BlackRock supported 9% of key climate shareholder initiatives in the 2017 proxy season, while voting in favor of 14% of proposals for companies to specifically outline their risks under the Paris Agreement on climate change.

In December 2019, Al Gore, the former U.S. vice president who has become a leading sustainability advocate, told the Financial Times that large index fund managers such as BlackRock and Vanguard Group Inc. were seemingly taking the right steps toward addressing climate. But he said more needs to be done.

"I think the large passive managers have a real difficult decision to make. Do they want to continue to finance the destruction of human civilization, or not?" Gore said in an interview with the paper. "I know most of them personally, I think they are quite sincere in expressing their determination to find a positive pathway forward. But patience is wearing thin in many quarters."

BlackRock's changing approach to sustainability comes after a year in which climate change reached a new platform on the global stage, despite setbacks for climate policies on the federal level in the U.S. While it may take decades, Fink wrote in his letter that the transition toward sustainable energies is dependent on both governments and private companies.

"Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges — the inflation spike of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble and the global financial crisis," Fink wrote. "Even when these episodes lasted for many years, they were all, short-term in nature. Climate change is different."