by Eric
Zuesse
January 18, 2020
Eric Zuesse
On January 14th, the world’s
largest investor, BlackRock, sent two historic letters, one addressed to
“Clients” (basically the world’s wealthiest individuals and their financial
advisors) and the other to “CEOs” (the heads of the firms in which the world’s
largest investor invests), and they both announced the now inevitable
earthquake that’s coming to global capitalism. The letter didn’t say precisely
when it will hit, but did say, “In the near future – and sooner than most
anticipate – there will be a significant reallocation of capital.” Here’s more
from the two letters:
—
A Fundamental Reshaping of
Finance
Dear CEO,
As an asset
manager, BlackRock invests on behalf of others, and I am writing to you as an
advisor and fiduciary to these clients. …
I believe we are on the edge
of a fundamental reshaping of finance.
The evidence on climate risk
is compelling investors to reassess core assumptions about modern finance. …
Investors are increasingly
reckoning with these questions and recognizing that climate risk is investment
risk. …
In the near
future – and sooner than most anticipate – there will be a significant
reallocation of capital. …
As a fiduciary, our
responsibility is to help clients navigate this transition. …
Over the next few years, one
of the most important questions we will face is the scale and scope of government
action on climate change, which will generally define the speed with which we
move to a low-carbon economy. …
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. …
Sustainability as
BlackRock’s New Standard for Investing
Dear Client,
Since
BlackRock’s founding in 1988, we have worked to anticipate our clients’ needs
to help you manage risk and achieve your investment goals. As those needs have
evolved, so too has our approach, but it has always been grounded in our
fiduciary commitment to you. …
The most significant of
these factors today relates to climate change, not only in terms of the
physical risk associated with rising global temperatures, but also transition
risk – namely, how the global transition to a low-carbon economy could affect a
company’s long-term profitability. …
As your fiduciary, BlackRock
is committed to helping you navigate this transition and build more resilient
portfolios. …
These models will use
environmental, social, and governance (ESG)-optimized index exposures in place
of traditional market cap-weighted index exposures. …
• Reducing ESG Risk in
Active Strategies – In heightening our scrutiny on ESG issues. …
• Putting ESG Analysis at
the Heart of Aladdin – We have developed proprietary measurement tools to
deepen our understanding of material ESG risks. For example, our Carbon Beta
tool allows us to stress-test issuers and portfolios for different carbon
pricing scenarios. …
• Doubling Our Offerings of
ESG ETFs. …
• Working with Index
Providers to Expand and Improve the Universe of Sustainable Indexes. …
• Expanding Sustainable
Active Investment Strategies. …
Our Commitment
Our role as a fiduciary is
the foundation of BlackRock’s culture. …
We invest on your behalf,
not our own. …
While the low-carbon
transition is well underway, the technological and economic realities
mean that the transition will take decades. Global economic development,
particularly in emerging markets, will continue to rely on hydrocarbons for a
number of years. As a result, the portfolios we manage will continue to hold
exposures to the hydrocarbon economy as the transition advances.
A successful low-carbon
transition will require a coordinated, international response from governments
aligned with the goals of the Paris Agreement, including the adoption of carbon
pricing globally, which we continue to endorse. …
The steps we are taking
today will help strengthen our ability to serve you as a fiduciary.
Sustainability is becoming increasingly material to investment outcomes. …
—
Basically, the world’s largest
investor, BlackRock (manager of about $7 trillion in funds), is predicting that
as the 90%+ consensus of climate scientists increasingly impacts the relative
prices of renewable as compared to non-renewable energy-sources, the “ESG”
premium on the renewable (such as solar, wind, etc.) will inevitably cause the
non-renewable (coal, oil, and gas) energy-sources to need to become
ever-cheaper in order to remain competitive — and this will drive down the
values of stocks in the non-renewable category, and drive up the values of
stocks in the renewable category.
These two letters are saying
that this will be evident “In the near future – and sooner than most
anticipate,” but “the technological and economic realities mean that the
transition will take decades.” There is an obvious tension between
those two assertions. The “In the near future – and sooner than most
anticipate,” is addressed to “CEOs,” but the “the technological and economic
realities mean that the transition will take decades” is addressed to “Clients”
— BlackRock’s customers, mainly the world’s billionaires and
centi-millionaires, but also the investment-managers for large organizations.
The “Clients” naturally have a preference for low perceived risk in their
investments; and BlackRock is, in that letter, providing its clients the sense
that there will be no earthquake to their investments. If one happens,
BlackRock will be able to say to its clients, “We told you that this is coming,
but it came faster than we and our competitors expected,” and they’ll be right
about that. As regards the letter to “CEOs,” it’s telling them to
transition as fast as is reasonably possible out of fossil-fuel investments and
into renewable-fuel ones, in order to become less vulnerable to the shock, when
it does hit. This makes good sense: keeping the clients comfortable, while
telling the CEOs: “Make major moves on this ASAP!”
—————
Investigative historian Eric
Zuesse is the author, most recently, of They’re Not Even Close: The
Democratic vs. Republican Economic Records, 1910-2010, and
of CHRIST’S VENTRILOQUISTS: The Event that Created
Christianity.
/https://www.niagarafallsreview.ca/content/dam/thestar/news/canada/2021/09/25/huawei-executive-meng-wanzhou-receives-warm-welcome-upon-return-to-china/_1_meng_wanzhou_2.jpg)
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