Top brass at the world’s largest asset manager says the rules governing investments are evolving to factor in environmental risks

By Karl Mathiesen

Capitalism must change to avert climate change, according to the vice-chair of the world’s largest asset manager, Blackrock.

Two weeks ago, Blackrock boss Larry Fink shook the corporate world with a letter demanding social responsibility in return for the support of his company, which manages around $6 trillion in assets.

On Wednesday, at the annual World Economic Forum in Davos, vice-chair Philipp Hildebrand expanded on that theme.

Fiduciary duty – asset managers’ legal responsibility to make clients the best return on their money – is often deployed as a reason not to consider how investments might impact the climate. But that concept was “evolving”, said Hildebrand.

He called on academics to look more deeply at the issue. The European Commission recently launched a public consultation seeking for contributions from the financial world.

“We will hopefully demonstrate that at a minimum there is not a negative trade-off and there may even be better performance,” said Hildebrand.

That would mean funds like Blackrock could become duty-bound to consider environmental risks such as climate change while making investments. It would create a dramatic shift, he said, but warned it would take time.

“We have to be realistic, we also have an enterprise to run, we have shareholders, this is a complicated story. Nobody is served by reducing this to very simple, fast things that we have to do immediately. We have to change capitalism. This is really what’s at stake here. And frankly we need a new contract between companies, investors and governments,” said Hildebrand.

Former US vice-president Al Gore, who was on the panel with the Blackrock executive, agreed that the field of research was still evolving. But said: “In 26 sectors of the economy, the vast majority of them, the companies that integrate ESG (environmental, social and governance) into their business plans perform better.”

He added: “For many years investors and asset managers have said ‘well I would like to invest with attention to these things, but my fiduciary duty to my clients keeps me from doing it’. The revolutionary change… is that now it may be becoming clear that if you do not integrate these factors into your investing, you’re violating your fiduciary responsibilities.”

Blackrock’s activist rhetoric on climate change and sustainability is not new. In 2016, Fink called on companies to consider climate risk.

Last year, Blackrock hired Brian Deese, a former senior advisor to president Barack Obama, to head up its $195 billion Sustainable Investing group. Deese was a key advisor to the president on climate and part of the US team that negotiated the Paris climate accord.

Critics note that most of Blackrock’s money is in passive funds, limiting its ability to shape the market by divesting from unsustainable businesses.

The investor has other ways of exerting pressure, though. Last year it backed a shareholder resolution forcing oil giant Exxon Mobil to report on its exposure to climate risks. As a shareholder, it can also vote for board members.

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