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'Climate risk is investment risk': BlackRock exiting thermal coal investments

BlackRock Inc. will quickly distance itself from much of the thermal coal sector, company CEO Larry Fink said in his annual letter to CEOs.

Fink wrote in the Jan. 14 letter that the investment giant is heightening scrutiny on environmental, social and governance factors in its investments. Part of that strategy will be removing the public debt and equity securities of companies that generate more than 25% of their revenues from thermal coal production from BlackRock's discretionary active investment portfolios. BlackRock said it will make no future direct investment in such companies either.

"Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts," BlackRock wrote in a letter to its clients. "With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector."

BlackRock said that by the middle of 2020, it will exit its investments in companies that depend on thermal coal for more than 25% of their revenues. It will also carefully scrutinize other businesses that are heavily reliant on thermal coal as input to "understand whether they are effectively transitioning away from this reliance."

"[A]wareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance," Fink wrote.

The announcement comes amid a wave of banks, insurers and other financial institutions pledging to divest investments in coal or otherwise not do business with the sector. BlackRock manages more than $6 trillion in assets and is the world's largest asset manager.

Reallocation of capital to address the risks of climate change is coming in the near future and sooner than many anticipate, Fink said. Whether it is about the physical risks associated with climate change or how climate policy will impact prices, costs and demand across the entire economy, investors want to know how they should think about climate change, the CEO added.

"Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk," Fink wrote. "Indeed, climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios."

The asset manager has a major presence across the world of energy and the broader economy, including the coal sector. For example, as of the end of the third quarter, Blackrock held 5.2 million shares of Peabody Energy Corp., the largest coal producer in the U.S. The position is valued at $45.1 million based on prices recorded Jan. 13. BlackRock is one of Peabody's five largest shareholders, with about 5.4% of the coal company's outstanding shares, according to the most recently available data. BlackRock is also one of the five largest investors in several other coal companies, including Arch Coal Inc., Consol Energy Inc. and Contura Energy Inc.

BlackRock recently joined the Climate Action 100+ investor initiative, a group of global investors with more than $35 trillion in assets under management.

In a news release, Sierra Club campaign representative Ben Cushing urged BlackRock to do more to expand on the new commitments and urged other financial institutions to follow suit.

"The financial giants propping up the industries driving us towards climate disaster can no longer escape public scrutiny," Cushing said. "As the biggest financial institution in the world, BlackRock's announcement today is a major step in the right direction and a testament to the power of public pressure calling for climate action."