It is a well-known fact: supertankers do not change their course easily. But once the decision is made on the bridge, the change of course is pushed with significant force and mass. Take BlackRock, the world’s largest asset manager. It lagged behind in making its policies more sustainable, but now, according to a letter, is offering its clients a veritable ‘one stop shop’.
A seven-page letter, How to Invest in the Net Zero Transition: a Framework for Our Clients, sent to clients on today, showcases the comprehensive services that the American house can offer in both breadth and depth.
The starting point for the extensive services and products that BlackRock offers its clients is a hundred or so interviews that the American firm has conducted with its clients. On this basis, a framework was developed to help clients achieve their goals in the global transition currently taking place. That transition framework ‘Navigate, Drive and Invent’ begins with the understanding that “a good understanding of the transition is vital to achieve (better) long-term returns.”
‘How do I manage the risks and seize the opportunities?’
For example, the transition to a more sustainable world is underway, as evidenced by, among other things, sustainable companies seeing their cost of capital fall and 70 percent of market-wide ESG indices outperforming non-ESG indices by 2021. “Markets are only at the beginning of the effects of the climate transition on asset prices,” argues BlackRock.
With the first step of its approach - ‘Navigate’ - BlackRock responds to the most pressing question that clients ask: how do I navigate through this transition period, managing the risks and seizing the opportunities? The house does this by visualising the impact of the transition on the entire portfolio. To do this, transition benchmarks are used and new generations of tilt funds are presented. This year, opportunities in the area of “climate-conscious broad market exposure” will be added, as well as new fundamentally driven active strategies for iShares’ ETF strategies.
“I am a capitalist”
In the next phase, that of ‘Drive,’ BlackRock seeks to respond to the fact that clients want to do more than navigate the cliffs of transition. They also want to actively contribute to progress. Many clients ask themselves: should I get out of carbon-intensive companies or should we invest in carbon-intensive sectors that are in the process of ‘going green’?
The latter, BlackRock states unequivocally.
“You can get out, but that doesn’t eliminate the problem,” said Monique Donders, who heads the Dutch narrow section of the house. Referring to earlier statements by BlackRock chief Larry Fink: “I am a capitalist. But you have to listen to all stakeholders, like employees, customers and suppliers, to ensure maximum shareholder value,” Donders said.
Stakeholder and shareholder value are now inextricably linked. Donders points out that young people no longer want to work for, or even be customers of, companies that do not serve the mission of contributing to a carbon-neutral world so quickly.
In search of the climate unicorns
The third component in the transition framework is ‘Invent’. BlackRock argues that clients have “tremendous opportunities” to invest in technologies and companies that are able to “invent important aspects of a truly carbon-neutral economy.”
To that end, BlackRock is looking for, among other things, the “Climate Unicorns” of the 21st century. For this purpose, the “Decarbonization Partners” initiative with Singapore’s Temasek was announced last year, which seeks to find growth companies that are at an early stage in the development of renewable and mobility technologies.
Along with this letter to clients, BlackRock today publishes the report ‘Managing the net zero transition’. In it, it takes a holistic view of the challenge of managing risk, as well as capitalizing on investment opportunities that a transition presents. Click here to read the report.