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Sustainable investment is accelerating

Fri 05 Feb 2021 | 09:21 am GMT
Michelle Urquhart | Products of Change Writer

BlackRock's Larry Flint

BlackRock’s Larry Fink tells businesses that more and more investors are choosing to tilt their investments towards sustainability-focused companies. In his annual letter to companies in which BlackRock invests, Larry Fink, BlackRock’s CEO said: “I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives. It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.” In his last letter in January 2020, Fink wrote that climate risk is investment risk. He said then that as markets started to price climate risk into the value of securities, it would spark a fundamental reallocation of capital. Then the pandemic took hold – and in March, the conventional wisdom was the crisis would divert attention from climate. But just the opposite took place, and the reallocation of capital accelerated even faster than anticipated. From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. “I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type,” Fink wrote in his letter. “Essential to this transition has been the growing availability and affordability of sustainable investment options. Not long ago, building a climate-aware portfolio was a painstaking process, available only to the largest investors. But the creation of sustainable index investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.” As well as growing demand of investors for sustainable assets, Fink also outlined the importance of the transition to a net zero economy. “As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders – with customers, policymakers, employees and shareholders – by inspiring confidence that they can navigate this global transformation.” But he warns: “Companies that are not quickly preparing themselves will see their businesses and valuations suffer, as these same stakeholders lose confidence that those companies can adapt their business models to the dramatic changes that are coming.” Given how central the energy transition will be to every company’s growth prospects, BlackRock is asking companies to disclose a plan for how their business model will be compatible with a net zero economy. Read Larry Fink’s full letter here
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