BlackRock Inc. is cashing in on the rush toward sustainable investments and it has no plans to slow down.
A day after Chairman and CEO Larry Fink outlined a new strategy to put sustainability at the forefront of BlackRock's investment thesis, the world's largest asset manager posted surging earnings results for the fourth quarter of 2019. Its fastest-growing segment was its lineup of sustainable exchange-traded funds, which generated $4 billion of net inflows in the quarter and brought its total flow count for all of 2019 to $12 billion, President Robert Kapito said Jan. 15 on a call with analysts.
"We're entering a new era of finance," Fink said during the call. "Sustainability reached an inflection point with more and more clients focused on the impact of environmental, social and governance factors on their portfolios."
The asset management giant's sustainable ETF product suite now has total assets of about $22 billion, CFO Gary Shedlin said. That total is mere blip in the company's $2.24 trillion iShares ETF business. Yet, Fink said sustainability represents "one of the broadest opportunities" BlackRock has ever had.
Investors have been pushing further into the ESG market for several years now. That has largely come through both individuals and institutions examining their portfolios' holdings for certain risks to nontraditional financial factors, such as a company's carbon emissions, lack of board diversity or real estate holdings that lie in flood plains.
Global ESG assets were valued at about $12 trillion at the start of 2018, according to a biennial sustainability report from the U.S. Forum for Sustainable and Responsible Investments.
With $7.43 trillion in assets under management, BlackRock carries massive weight in the sustainability conversation taking place across corporate America. The company is one of the largest investors in the world and could exert considerable influence on a company's direction through the votes it casts at annual shareholder meetings.
BlackRock has been criticized in recent years for not fully using that ability, though.
The Institute for Energy Economics and Financial Analysis, which examines financial issues in the energy sector and is designed to accelerate the transition to sustainable energies, released a report in February 2019 that said progress from BlackRock and rival fund manager Vanguard Group Inc. in restricting coal investments has been "less than impressive."
Fink, in his annual 2020 letter to fellow chief executives around the world, said BlackRock will take a more active approach in addressing climate concerns regarding its investments. The company is now unwinding its stakes in publicly traded companies that generate more than 25% of their revenues from thermal-coal production. Fink added that BlackRock plans actively vote against board members and executives at companies where sustainability issues are not being properly addressed.
"Climate change has become a defining factor in companies' long-term prospects," Fink wrote in his 2020 annual letter. "In the near future — and sooner than most anticipate — there will be a significant reallocation of capital."