BlackRock to focus on ESG and climate change in 2020

BlackRock (NYSE:BLK) CEO Larry Fink’s 2020 letter has focused on climate change and outlined plans for the world’s largest asset manager to reduce investments in those companies that damage the environment.

Many investors have recently focused on the impact of sustainability of their portfolios and the 2020 letter signals a shift in major asset management.

“Because sustainable investment options have the potential to offer clients better outcomes, we are making sustainability integral to the way BlackRock manages risk, constructs portfolios, designs products, and engages with companies,” the firm’s global executive committee, which includes Fink, wrote in its letter to clients Tuesday.

“We believe that sustainability should be our new standard for investing.”

This has been caused by a rise in awareness of how sustainability-related factors can affect economic growth, asset values, and financial markets as a whole.

In the update, the firm said that it would be looking to help clients navigate towards this trend of ESG investing, nothing that sustainable investment options have the potential to offer clients better outcomes.

The asset management firm said as the standout headline that sustainability would be the new standard for investing, something which has hit the market by storm over the last few years.

BlackRock have said that they will make sustainability the main offering in solutions, noting that clients may have to learn further about ERISA regulation for those who are inexperienced with ESG investing.

Notably, the firm said that they will be offering sustainable solutions at fees comparable to traditional solutions, which means that investors will not incur further costs to make the shift into ESG Investing.

This will allow investors to have an easier way to access a sustainable portfolio at good value in a single ETF, something which could differentiate BlackRock from its competitors.

Currently, every active investment team at BlackRock considers ESG factors in its investment process and has articulated how it integrates ESG in its investment processes.

Active Portfolios

By the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated – meaning that, at the portfolio level, our portfolio managers will be accountable for appropriately managing exposure to ESG risks and documenting how those considerations have affected investment decisions.

The firm gave an example of the thermal coal market, saying that this is an industry which is significantly carbon intensive and environmentally degrading. BlackRock added that this means it is highly exposed to regulation because of its environmental impacts, which may deter ESG investors into this field.

With regards to this sector, BlackRock have said that they will remove public listings of companies that generate more than 25% of their revenues from thermal coal operations, showing an emphasis on the shift to address environmental and sustainable investor needs.

BlackRock’s alternatives business will make no future direct investments in companies that generate more than 25% of their revenues from thermal coal production and are looking to cut down in investing into companies that go against environmental concerns

The asset manager said today that they want to promote both ESG and Impact Investing to both clients and investors as it allows a new brand of investing to take the market.

The firm already provides data on their website for iShares that display an ESG score and the carbon footprint of each fund, which will make it easier for shareholders to weigh up investments based on environmental data analytics provided by BlackRock, which has given BlackRock the edge over its competitors.

By the end of 2020, the firm intend to provide transparent, publicly available data on sustainability and environmental factors, including data on carbon footprint and emissions for BlackRock mutual funds – by the end of the year the rise to ECG and impact investing may mean that these data sets are the most important for investors.

Increased Access to Sustainable Investing

BlackRock have reassured the market and investors that they will do all they can to improve access to sustainable investing to allow investors as much exposure to the field.

As many clients may not understand this, the work that the asset management firm are doing to both educate investors and improve accessibility is certainly noteworthy.

There has been a clear need for naming conventions for ESG products industry wide, giving investors a clear transparent picture whilst allowing differentiation from ESG investments compared to traditional ones.

BlackRock note that they are planning to double the choice and range of ESG ETF’s over the next few years, which have included sustainable versions of current products.

This was done so that clients have more choice for how to invest their money and understand the businesses which they are putting their money into.

Next there will be an emphasized effort to simplify and expand ESG iShares, which will include ETF’s with a Fossil Fuel Screen.

This will allow clients to integrate ESG into their existing portfolios with ease, and make the transition process more efficient. Notably, this will mean that BlackRock require three ESG ETF suites in the USA and EMEA.

Firstly, one that enables clients to be able to filter certain sectors and businesses which are not appealing to investors, allowing the selection process to be more specific and tailored towards the client.

Secondly, another that enables clients to improve ESG scores whilst having the opportunity to weigh up and look at other standardized market indexes, which ensures that the database that BlackRock have is continually being improved and updated.

Finally, another type that enables clients to invest in companies with the highest ESG ratings, which gives clients an opportunity to study all the data provided along with profiles of the company allowing an all round assessment before investing.

Following on, there will be ensured plans to work with index providers to improve choice of sustainable indexes, providing a wider variety of sustainable investment options with the data backing it up for investors.

BlackRock have really focused on giving new ESG investors all the information when making the transition – something which is very important for those who are not well versed in the field.

BlackRock have also recently brought about a new department which deals with impact investing, that offers clients a range of companies chosen on their positive impact to society.

This has led to a commitment to launching a dedicated impact investing team, which will begin with the launch of a Global Impact Equity fund this quarter which will excite those involved in the field of impact investing.

Impact investing solutions will be aligned with the World Bank’s IFC Operating Principles for impact Management, assessing what areas a particular firm is looking to address and how their business needs and goals match up to this.

It seems that BlackRock have joined the bubble of ESG investing at a time where environmental and social responsibility have never been so important.

ESG Multi Asset Fund

BlackRock now provide an ESG Multi-Asset Fund among other sustainable offerings.

Notable facts from this fund show that the size of the fund is €780.798 million, with 553 holdings.

This fund has a risk level of 4 out of 7 which is provided on BlackRock’s website, showing that it is a medium risk investment and investors should be expecting rewards in the media range.

Notable holdings in this fund include Microsoft Corp (NASDAQ:MSFT) who have also made a pledge to ramp up their environmental concerns.

The fund has returned 5.08 on an annualized basis over the past three years against a benchmark of 5.99%.

Blackrock Global High Yield ESG and Credit Screened Fund

The size of this fund is $178.44 million, having a holdings total of 541.

BlackRock have used this fund to create a safety net fund, which has a risk rating of 3 out of 7 where low rewards are expected but this is more consistent than their counterparts.

Notable holdings include Xerox (NYSE:XRX), QWest Corporation (NYSE:CTAA). Notably, the fund has high exposure to the United States, which would attract investors looking to gain exposure in America.

BSF Impact World Equity Fund

With regards to the impact investing arena, BlackRock offer clients the BSF Impact World Equity Fund.

The size of the fund is $215.836 million, and as of December 31 has 451 holdings.

As this is an impact investing fund, BlackRock have given it a slightly higher risk rating of 5 out 7 on their scale.

Notable holdings in this fund include Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Visa (NYSE:V).

The fund has returned 25.99 on an annualized basis over the last four years, against a benchmark of 55.84%.

Fidelity ESG Investing

Another firm in Fidelity (NYSE:FIS) are also making the shift towards ESG investing.

The firm have said that they are becoming more engaged in the ESG ratings of the companies that they invest and offer to clients, as this has become one of Fidelity’s highest priorities of late.

Fund managers in the sustainable, ethical and socially responsible investing (SRI) space are now starting to value these factors when looking at investment opportunities.

Fidelity have said that they want to find the balance between finding the right investment opportunities whilst looking at the social and philanthropic values of the company, in a time where environmentalism has become important

Following a study by Fidelity, they found that companies who take pride and value social issues, taking into account ECG are better companies with more potential and attract more investment, and that there will be an ensured effort to promote both ECG and impact investment.

Interestingly, the firm noted that there was a middle ground between impact investing companies and companies that do not prioritize ESG values, which was highlighted in their research

Fidelity noted that there is a rise in investors who are looking to engage with companies to help them become more sustainable, and that investors are now playing a more active role in allowing companies to be have more corporate responsibility.

Fidelity engaged with 780 companies in 2018 on issues such as governance and remuneration, and have made a pledge to increase this as the investment scene looks to get to grips with environmental concerns of investors.

This shows the effort that both Fidelity and BlackRock are making to expand their portfolios, and it may be the case that before 2020 many more strides are made to shift into the ESG arena.

Certainly, the world of Impact Investing and ESG investing is young. However it seems that BlackRock and its competitors are keen to make a statement and prioritize ESG in a time where environmental and social values have never been so important.

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