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Climate change to trigger ‘fundamental reshaping of finance’, BlackRock warns

BlackRock – the world’s largest asset manager – has today warned that climate change will trigger a “fundamental reshaping of finance”, with a substantial capital reallocation imminent.

Larry Fink warns of climate risks ©Wilson Center
Larry Fink warns of climate risks ©Wilson Center

In a letter to CEOs, BlackRock chief executive Larry Fink said that markets have been slow to reflect the risks that climate change pose to economic growth and prosperity.

He revealed that it is the top issue that clients invariably raise with BlackRock, and that this is driving a “profound reassessment of risk” and asset values worldwide.

"They are seeking to understand both the physical risks, as well as the ways that climate policy will impact prices, costs, and demand across the entire economy," he said.

"I believe we are on the edge of a fundamental reshaping of finance. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital."

This comes after economists found that BlackRock lost more than $90bn (£69bn) investing in fossil fuel companies over the last decade.

In a separate letter to clients today, Fink outlined a series of new measures that BlackRock will take, revealing that “sustainability should be our new standard for investing”.

These include ensuring that all its portfolio managers are accountable for managing exposure to environmental, social and governance (ESG) risks by the end of 2020.

It will also offer sustainable versions of its flagship model portfolios that use ESG-optimised index exposures in place of traditional market cap-weighted exposures.

Moreover, BlackRock announced plans to stop investments in companies that generate more than 25% of revenue from coal, and to apply more pressure to firms that ignore climate risks.

This comes after the asset manager revealed that it has joined the Climate Action 100+ investor engagement scheme to help align investee companies’ emissions with the Paris Agreement.

"Every government, company, and shareholder must confront climate change," Fink continued.

“A company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders."

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