Recognising the growing commercial opportunity facing the sector, and the long-term risk of investing in environmentally unfriendly industries, Fink notes that “as a fiduciary, our responsibility is to help clients navigate this transition [the reallocation of capital]. Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors”.
But where does this leave industries which have been traditionally harmful to the environment, such as the oil and gas industry, for a long time the bedrock of investment portfolios and still an essential service despite growing environmental concern?
In light of BlackRock’s position, The Economist wrote: “[t]o cynics, all the climate-friendly noises amount to little in practice, since few people are ready to make carbon-cutting sacrifices that would force oil firms’ hands. But noises are sometimes followed by action. Should they be this time, the 2020s may be do-or-die for the oil industry”.
It isn’t a case of ‘adapt tomorrow or die’ for fossil fuel companies however, and Fink makes this clear, forecasting “the energy transition will still take decades”. Citing fairness and justice, “we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world”. The demand for energy will continue whilst technology works to bring cost-effective replacements to conventional fuel sources, but it is incumbent on the sector to aggressively pursue cleaner energy; not only from an ethical perspective, but also in order to remain an attractive investment. The same is also true for a number of other sectors which have for a long time been harmful to the environment, and must adapt with the new way of sustainable investing.
Companies from within the fossil fuel and investment sectors which are leading the transition to a more sustainable future are on the right path, reinforced by public support. This should not be derailed. Communicators in these sectors therefore have the opportunity to maintain messaging around this transition, but with fairness in mind, should also remain sensitive to the societies whose energy programs are not as developed as some of the leading world economies. The transition to sustainable investing will need a collective effort – innovation from industry, reallocation of risk, government support and sustained societal scrutiny, but in adopting Fink’s position, it should be worthwhile effort for investors, producers, and consumers, from both an environmental and a financial perspective.
Contact: Alex Russell - Email | LinkedIn