BlackRock pulls plug on coal

The world’s largest fund manager is ditching investments including thermal coal in a response to climate change concerns.

Chairman and CEO of BlackRock Larry Fink says the fund manager will wave goodbye to investing in thermal coal amid increasing pressure for investors and nations to ratchet up their commitment to climate change. Picture: AFP

The world’s largest fund manager, BlackRock, has said it will ditch investments including thermal coal as part of a response to rising climate change concerns.

The US asset management giant headed by Larry Fink said the investment risks posed by global warming were set to trigger substantial changes in how it invests $US7 trillion ($10 trillion) in assets.

“Climate change has become a defining factor in companies’ long-term prospects,” Mr Fink wrote in his annual letter to corporate bosses late Tuesday.

“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

Amid increasing pressure for investors and nations to ratchet up their commitment to climate change, the BlackRock boss said changes would include a ban on thermal coal to reflect concerns on emissions, posing a fresh headache for Australia as a leading exporter of the fossil fuel.

“Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts,” Mr Fink said.

“With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.”

BlackRock said it would create new investment products to screen for fossil fuel exposure and boost its transparency around sustainability initiatives.

The fund management giant joined the Climate Action 100+ initiative in January, which controls $US32 trillion in global investment and is backed by major Australian super funds flexing their power to hold companies to account.

BlackRock named Australia among countries where investors were asking how they should change their portfolios to reflect increasing climate risk.

People wear breathing masks to protect themselves from a thick smoke haze that hangs over Melbourne from the bushfires, January 14, 2020. Picture: AAP

“They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy,” Mr Fink noted.

The move represents a significant shift in the way investors are rethinking a “business as usual” approach to climate concerns.

“These questions are driving a profound reassessment of risk and asset values. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital,” Mr Fink said.

The thermal coal ban applies to companies that generate more than 25 per cent of their revenues from production of the energy source, while BlackRock said its alternatives business will make no future direct investments in companies that generate more than a quarter of their revenues from the fossil fuel.

Mr Fink said climate change was a challenge unlike anything else and it had the potential to significantly upend financial markets.

“I have witnessed a number of financial crises and challenges – the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis.

“Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature.

“Climate change is different. Even if only a fraction of the projected impacts is realised, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”