Putting Money Where the Crisis Is

The most significant news of the week may not have come out of Washington or Iowa, but in a letter.

The letter was from the head of BlackRock, the world's largest asset manager of nearly $7 billion, to corporate chief executives.  In it he acknowledged the import of what's been happening in Australia, the Arctic and many other places on the planet, and issued a prediction.

"The evidence on climate risk is compelling investors to reassess core assumptions about modern finance," he wrote, explaining that climate change is the top concern that investors raise with BlackRock. "In the near future — and sooner than most anticipate — there will be a significant reallocation of capital."

For one thing, that means an immediate migration of capital away from coal and other fossil fuels to green energy.  Accordingly, BlackRock will "remove companies that generate more than 25% of their revenues from coal production" from the quarter of its portfolios that are actively managed. Further:

BlackRock says it will require additional reporting from the companies it invests in, including disclosure of climate-related risks and plans for operating under the goals of the Paris Agreement to limit global warming to less than 2 degrees Celsius.

"[W]e will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them."

As reported by Marketwatch, BlackRock's position is that unlike more familiar but relatively short-lived financial crises, the climate crisis is a truly long-term one.

“And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

The role of money in addressing the climate crisis has been highlighted in the fiction by Kim Stanley Robinson, beginning with the trilogy later combined for the novel Green Earth.  In those novels, global re-insurance companies were crucial in financing large-scale efforts to address the climate crisis.

Steps like this dramatic and meaningful one are necessary though far from sufficient, and depend on better judgment than most financiers seem to have.  And the scale of the problem may require even more (Robinson for example has apparently come to believe that the climate crisis will not be addressed unless capitalism itself is fundamentally changed.)  But in the onslaught of bad news on climate (like confirmation that the past decade was the hottest on record), this is  noteworthy positive news.