Environmental sustainability investments are the next big thing.
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DAVOS, Switzerland — BlackRock Chairman and CEO Larry Fink feared his annual letter to chief executives would trigger a “severe backlash” against the world’s largest investment firm, particularly because many of its clients are big hydrocarbon producers.
Fink warned CEOs earlier this month that an intensifying climate crisis would bring about a “fundamental reshaping of finance,” with a significant reallocation of capital set to take place “sooner than most anticipate.”
It marked a stunning shift by the world’s top asset manager, following growing pressure from investors and climate activists about its investing practices.
“I actually thought we were going to have a severe backlash on this one,” Fink said at a World Economic Forum session on Thursday.
That’s “because we manage money for countries that are big hydrocarbon producers (and) we manage money in the United States where the states are totally dependent on hydrocarbons for their economy.”
“And yet, we can talk about the public narrative, but the private conversations we had with our clients I would say was 99:1 in favour,” Fink said.
BlackRock’s assets under management totaled nearly $7 trillion in the third quarter of 2019.
‘Overabundance of capital’ will help mitigate climate risks
In Fink’s letter, published Jan. 14, the New York-based investment firm explained how it would avoid investments in companies that have a high sustainability-related risk.
It would also start to exit investments in coal production, introduce funds that ban fossil-fuel stocks and vote against corporate managers who aren’t making progress on fighting the climate crisis.
The announcement was largely seen as a major step forward by climate activists, but many wanted the asset manager to expand its commitments to help other financial institutions follow suit.
Fink’s comments in Davos, Switzerland came as many of the world’s policymakers and business leaders gathered in the luxury ski resort to discuss how best to fight the climate emergency.
The event, which is often criticized for being out of touch with reality, has said it aims to assist governments and international institutions in tracking progress toward the Paris Agreement and the U.N.’s Sustainable Development Goals.
It follows a 12-month period that saw the hottest year on record for the world’s oceans, the second-hottest year for global average temperatures and wildfires from the U.S. to the Amazon and Australia.
“This is the beauty of capital markets. When more people believe in something, we bring the problem forward,” Fink said Thursday.
“Through that reallocation of capital, we are going to see an overabundance of capital available to mitigate” some of the problems associated with the climate crisis, he said.
Fink said the problem was not going to be capital markets or capitalism, but rather whether governments would have the “fortitude” to act.
What if more money went into financing projects and policies that help the planet?
Creating a greener economy requires significant investment, whether that is funding a new network of electric buses, the creation of a solar farm, or building power plants that run on renewable energy.
And that means that the green bond market – money borrowed to invest in environmentally-friendly projects – is a good measure of the progress that countries are making on tackling climate change.
Since 2007, when the first green bonds were issued to help finance climate change solutions, the market has grown to reach a global total of $521 bn. And nearly 200 countries committed to mobilizing green finance under the terms of the 2015 Paris Agreement on climate change
The transition to a low-carbon, sustainable approach to growth could lead to an economic boost of $26 trillion up to 2030 and help create more than 65 million new jobs, according to the Global Commission on the Economy and Climate.
The US is head of the pack when it comes to green bonds, with $118.6 billion issued in 2018. Total US-based managed assets using sustainable strategies grew from $8.7 trillion at the start of 2016 to $12 trillion at the start of 2018 – an increase of 38%, according to the Global Sustainable Investment Review. This spike is reportedly being led by client demand, with 40% of US fund managers pointing to the UN Sustainable Development Goals as motivation for new investment in sustainable schemes.
Description Source: CNBC & WEF
#GreenFinance #Investments #Stocks