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BlackRock says it will no longer actively invest in companies
generating more than 25 per cent of revenue from thermal coal.
The world's largest fund manager has pledged to toughen its stance on climate change and reduce its exposure to thermal coal.
Key points:
- Blackrock CEO and chairman Larry Fink says climate change will lead to a "fundamental reshaping of finance"
- The fund manager has pledged to reduce exposure to thermal coal in its $US1.8 trillion of actively-managed assets
- German multinational Siemens will still provide signalling for Adani's Carmichael coal mine project despite protests
BlackRock, which has nearly $US7 trillion in funds under management, revealed the policy shift in letters published on its website.
It follows activist pressure on BlackRock as a major shareholder of fossil fuel companies.
In his annual letter to the bosses of the companies BlackRock invests in, chief executive Larry Fink said climate change has become a factor in companies' long-term prospects.
"I believe we are on the edge of a fundamental reshaping of finance," Mr Fink wrote.
"Investors are increasingly reckoning with these questions and [recognising] that climate risk is investment risk.
"In the near future — and sooner than most anticipate — there will be a significant reallocation of capital."Mr Fink said BlackRock will require companies to improve their financial disclosure to shareholders in relation to climate risks and sustainability.
"In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk," he wrote.
'Pedestrian and insufficient' commitment
In a separate letter to its clients, BlackRock said it would increase the number of 'sustainable' versions of its products, including passively managed exchange traded funds.The Institute for Energy Economics and Financial Analysis (IEEFA) described this development as "pedestrian and insufficient".
"IEEFA would strongly endorse a move by BlackRock to offer a low emissions index default offering for all investors, both new and existing," said IEEFA, arguing investors should have to 'opt in' for exposure to fossil fuels.
The majority of BlackRock's funds under management are invested in passive products, such as index-tracking funds.
The $US1.8 trillion in assets it actively manages will no longer be invested in companies that generate more than 25 per cent of their revenue from thermal coal production.
BlackRock's alternative investments business will make no new direct investments in companies that fall under the same criteria.
The IEEFA said this will lead to the "immediate review and likely divestment" of firms including Whitehaven Coal, New Hope, Yancoal and Adani.
"BlackRock beginning its shift of capital out of fossil fuels, including today's divestment of coal in its actively managed funds, is a fantastic start and instantly raises the bar for competitors such as Vanguard and State Street Global Advisors," said Diana Best from environmental campaign group the Sunrise Project.
But many of the world's largest miners are not captured by that threshold — for example, BHP's revenue from thermal coal in the 2019 financial year was $US1.55 billion, or just 3.5 per cent of its $US44.3 billion total revenue.
The Extinction Rebellion movement was less welcoming of BlackRock's announcement.
"It's not always the case that something is better than nothing, particularly if it's used to distract from the truth. And the truth is that the world's biggest miners and polluters will not be losing any sleep over this," it said in a statement on its website.
However, Emma Herd from the Investor Group on Climate Change (IGCC), which represents institutional investors with more than $2 trillion in funds under management, said the message sent to the global market should not be underestimated.
"There's no doubt that everybody is looking for more action from across the large corporate entities in every market, but the thing to remember is that this is the largest asset manager in the world loudly saying that they think that climate change is a key risk," said Ms Herd.
"I think it would be a very brave company that says that they can disregard the views of $US7 trillion worth of capital, so it sends an incredibly loud signal across markets and I have no doubt companies will be hearing it."BlackRock has also faced criticism on its voting record on climate-related shareholder resolutions and supporting the re-election of directors to the boards of fossil fuel companies.
In its letter to clients, BlackRock said it will improve disclosure of its voting records and will be "increasingly disposed to vote against management when companies have not made sufficient progress" on informing shareholders of climate and sustainability risks.
Siemens to work for Adani despite backlash
Earlier this week, German multinational Siemens announced it would be going ahead with a contract to provide signalling for the rail network to haul coal from the Carmichael coal mine in Queensland.
The company has faced protests, including outside its Munich headquarters, and an appeal from Greens leader Richard Di Natale to walk away from the Adani project.
In a tweet in December, Siemens chief executive Joe Kaeser thanked people for "reaching out" regarding Adani and said the contract would be reviewed.
Swedish climate activist Greta Thunberg tweeted that Seimens "have the power to stop, delay or at least interrupt the building of the huge Adani coal mine in Australia" and urged her followers to push the company to pull out of the contract.
In a lengthy statement on Sunday, Mr Kaeser said the work would go ahead and "there is practically no legally or economically responsible way to unwind the contract."
"However, given the importance of legitimate environmental concerns, we have secured the right to pull out of the contract if our customer violates the very stringent environmental obligations."
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