Climate Crisis Money’s No Problem — the System Needs to Address Unfairness: Blackrock’s Fink and World Bank’s Malpass (2)

–In some ways capital markets are moving faster than people dreamed they would: Fink

By Mathew Carr

May 25-27, 2021 — (LONDON): The world’s 200 countries are cooperating in more than 100 ways (see link 1 below) to fight the climate crisis, but it’s still not enough.

The problem is not a lack of finance, says Larry Fink, Chairman and CEO of Blackrock, the world’s biggest funds manager. He should know, because Blackrock oversees about $9 trillion.

What’s more, the money is “patient” and keen to achieve net zero emissions (and profits) over a 30 year timeline, he told the World Bank’s Innovate4climate conference held earlier today (Tuesday).

To make it work, there’s a lot to sort out about how the public and private sector interact, he said. “Let’s be clear, this is going to be a very difficult path” …Yet he’s optimistic a just transition can be created and enjoyed by the world’s poorest, not just the rich.

The climate talks in Glasgow in November will be crucial, he said. Global emissions of greenhouse gas are rebounding to near record levels as nations curb the global pandemic.

Fink was on the virtual stage with World Bank President David Malpass, who said a just transition to net zero emissions was crucial.

“There’s an inherent inequality or unfairness in the system. The 75 poorest countries produce just 4% of the world’s greenhouse gas emissions,” Malpass said. “One of the challenges for the finance industry is that giant amounts of money need to be invested in adaptation — moving people away from coastal areas, for example. From an investment standpoint, that’s a hard one to find where the profit comes from.”

“We’re going to put a lot of money into it” — more than $50 billion over the next five years.

Photo by Pixabay on Pexels.com

Fink said, on sustainable investment, asset allocation, Covid response, capital outflows, private-company oversight:

“We’re going to be able to customize investments for more and more organisations and what we are seeing is a constant questioning by public pension funds worldwide, sovereign wealth funds, family offices, individual investors across the board … if you look at where net inflows are going in 2020 and 2021, more and more money is moving to sustainable investments. That is a tectonic shift. That is a change in asset allocation.

“That’s going to change valuations of companies, if you are not moving fast enough. More and more business leaders and their boards are starting to recognize that if they are not moving fast enough they are going to have capital outflows of their shares versus other companies in their own industry. And this is only beginning.”

Blackrock is not just preaching, it’s changing boards. See this push at Exxon:

It’s still not enough for some:

(Fink’s not strictly right about the shifts toward sustainable investments, as there’s been a jump in flows toward dirty industries during the past few months, as the pandemic lockdowns eased in some countries.)

Still, he went on: the existential threat of Covid has had a huge impact on human health, for instance in India.

“With this high death rate in India… no one has really talked about the impairment of so many people’s lungs because of pollution.”

(Actually some people have been talking about it, see link 2 below.)

The existential Covid threat is morphing into existential climate threat: More and more people are now questioning the existential risk of adverse health and saying there needs to be a faster shift to save the climate, Fink said, adding he was surprised that Covid accelerated client interest in climate risk. Now, financiers have a better understanding of that risk, they are bringing the financial repercussions of the risk forward in their investment-portfolio models — they are pricing it in.

“We are beginning to price in the impact of climate risk. This is one of the things people are not understanding. It’s happening across the board now.”

He cited some examples:

  1. Florida homeowners have seen insurance premiums go up “year after year.”
https://www.valuepenguin.com/home-insurance-rate-increases-florida see also link 4 below

2. Some insurers have pulled out of parts of the California market because of wildfire risks.

3. U.S. corn output has been hurt by adverse weather.

U.S. corn yield; https://www.cropprophet.com/corn-yield-forecast-model/ ; corn prices surged in 2021, see link 3 below

The private sector, especially public companies, are moving much faster on climate action than governments: Fink

Fink continued:

“I am very excited and confident that we’re seeing, we’re seeing very fast movement, even faster movement than ever dreamed of, in terms of the capital markets. Obviously, let’s be clear, there are a lot of naysayers — publications — that repeatedly write … (that) this is merchandising or greenwashing or whatever they say.

I truly don’t believe that’s the case at all and I believe it’s actually for the first time in my 40 odd years (in business that) we’re seeing this tectonic shift, change in attitude, and the attitude is rapidly evolving into asset allocation.”

Private companies need overseeing properly, not just public companies, to meet the net-zero emissions target under the Paris climate agreement, Fink said:

“If we’re about only public companies … we’re not going to get to that (net) zero (target), we’re truly not being faithful to the net-zero objective of the Paris accord. All the society has to be a part of this. I am fearful right now that all the pressure is going to be on public companies to move forward.

Particularly frightening: “What I’m particularly frightened of — and we’re seeing such evidence of this — we’re seeing many public companies divest some of their hydrocarbons, and they look better, they look better to me as an investor in those companies.”

Fink didn’t spell it out, but if companies that are more-loosely regulated than public companies buy coal, oil and natural gas assets, there may be less chance they’ll be managed responsibly according to the Paris climate targets.

Fink snapshot

(Adds Tweets on Blackrock; Smooths translation, adds comments; warning: edited/smoothed AI translation; another warning: I have not fact checked every one of Fink’s statements; more to come)

NOTES:

LINK 1: https://unfccc.int/sites/default/files/resource/sbsta2021_inf01.pdf

LNIK 2: https://www.nytimes.com/2020/10/15/world/asia/india-covid-pollution.html

LINK 3: https://www.dtnpf.com/agriculture/web/ag/columns/article/2021/05/14/sense-grains-impending-doom?itm_source=parsely-api

LINK 4: https://www.tampabay.com/news/florida-politics/2021/04/28/florida-lawmakers-eye-changes-to-property-insurance-in-wake-of-soaring-rates/

Photo by Guduru Ajay bhargav on Pexels.com
East London graffiti

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