BlackRock CEO Calls For Climate Action: Will the Company Follow Through?

BlackRock CEO Larry Fink made a powerful bottom-line case for climate action on this week in his annual public letter to corporations. Fink has talked a good game on climate change in the recent past, but critics have alleged that BlackRock has failed to follow through — and some environmental groups reacted with skepticism to Fink's latest letter.

This time, however, the annual letter is freighted with action steps, and at least one organization has charted out the targets that BlackRock will need to hit in order to make good on Fink’s word.

BlackRock, climate action and the “ultimate long-term problem”

As the world’s largest asset manager, BlackRock has the power to move markets and influence corporate boards of directors.

The problem for climate activists is that, until now, BlackRock has exercised that power with excessive caution.

Nevertheless, Fink’s 2020 letter could be the harbinger of a change in the game.

In previous annual letters, Fink has cast social responsibility as a bottom-line fiduciary obligation rather than moral window-dressing. This view requires that corporations seek long-term solutions to persistent problems rather than solely chasing after short-term gains.

The new letter builds on that view by casting climate change as the biggest long-term problem faced by asset managers today.

Fink argues that global infrastructure, especially in cities, has been built without accounting for the reality of climate impacts.

“We are facing the ultimate long-term problem,” he writes. “We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company and shareholder must confront climate change.”

Adding up the score on climate action

This may sound like bluster, considering BlackRock’s prior track record.

However, at least one strong critic of BlackRock’s past practices, the Institute for Energy Economics and Financial Analysis (IEEFA), sees a clear road map for change in Fink’s letter.

IEEFA’s research indicates that companies taking a first step on climate change almost always continue to add action. So, while the new letter may not draw the full picture, it does indicate a strong start.

That strength of that start is embodied in BlackRock’s pledge to divest from any coal mining firm that generates more than 25 percent of its revenue from thermal coal.

Thermal refers to coal for power generation and other energy-related uses. Metallurgical coal will continue to be acceptable under the BlackRock plan, but the consequences will still be catastrophic for the global coal industry.

IEEFA lists Peabody Energy, Arch Coal, Inc., and CONSOL Coal in the U.S., and a score of other leading coal companies around the world, that are up for review and likely divestment under the new plan.

Companies targeted by climate action

That’s just step one of a three-part plan.

After prioritizing coal mining companies, BlackRock plans to take a hard look at coal consumers. To that end, IEEFA lists Duke Energy and Southern Company among other utilities and energy providers impacted by the review.

The third round will cover companies that provide infrastructure and other services in support of thermal coal.

From baby steps to leaps and bounds on climate action

On the downside, the new BlackRock divestment plan only impacts funds under active management. As the World Resources Institute and other environmental organizations have pointed out, BlackRock could do more in that area.

Still, the technology for achieving decarbonization is well in hand. What is needed now is acceleration. Even if BlackRock is only focusing on its active funds, the impact could be swift and dramatic.

For example, Duke Energy and Southern Company are vulnerable to divestment under the new BlackRock plan, even though they are among the U.S. firms transitioning into renewables.

To accelerate their renewable energy commitments — and prevent divestment - IEEFA recommends that they look to guidance from another U.S. company, Nextera Energy, or to France’s ENGIE and Italy’s ENEL.

All three of these companies have demonstrated that rapid decarbonization is both doable and financially advantageous.

Political implications in the U.S.

It will be interesting to see how the Fink letter plays out against the Trump administration’s latest move to slow the pace of decarbonization.

The administration has previously attempted to prop up the U.S. thermal coal industry by invoking its authority through the Department of Energy and the Federal Energy Regulatory Commission, to little avail.

Last week, just days before the Fink letter emerged, the administration formally proposed rolling back climate-related provisions in the National Environmental Policy Act (NEPA).

If enacted, the NEPA proposal would have the effect of digging the U.S. deeper into the infrastructure risk hole described by Fink.

That “if” is becoming more distant by the hour. The proposal is all but certain to be challenged in the court of law, and the new Fink letter virtually guarantees that it will not survive in the court of fiduciary responsibility, either.

Image credit: Tumisu/Pixabay