This past week, the world’s largest financial fund manager, BlackRock ($7 trillion), made huge headlines by announcing that it will now (finally) take into consideration climate-change risk in its investment decisions.
“The evidence on climate risk is compelling investors to reassess core assumptions about modern finance,” Laurence D. Fink, the chief of BlackRock, wrote in his annual letter.”
This founder of BlackRock apparently has realized three things: one, there is tremendous financial risk in not evaluating investments for how climate change may negatively affect their future profits (think coal companies, PG&E); two, clients are demanding financial products that are free of fossil-fuel investments; and three, companies evaluated with a sustainability lens may end up being more profitable.
“…BlackRock would begin to exit certain investments that ‘present high sustainability-related risk,’ such as those in coal producers… Had Mr. Fink moved a decade ago to pull BlackRock’s funds out of companies that contribute to climate change, his clients would have been well served. In the past 10 years, through Friday, companies in the S&P 500 energy sector had gained just 2 percent in total. In the same period, the broader S&P 500 nearly tripled”.
However late to the table BlackRock is, this sea change in investment strategy will influence the whole world of financial managers. When wind and solar projects started to make money for Wall Street investors, capital started pouring in to these projects and costs to build them came down due to efficiencies of scale. Financing solar projects has been a huge financial success for investors and, as well, now solar energy has become the lowest-cost energy source. If coal-fired power plants can’t make a financial return, then investors won’t finance them, and they won’t get built.
And why is all this global finance news important to an Idahoan? With every dollar you put into a bank, or a cd, or a mutual fund, you have a choice. Not only can you make a difference in climate-change efforts by adding your dollars to become a tidal wave of dollars financing renewable projects and sustainable companies, but you can avoid the risk that your ‘safe’ investment could financially fail (think PGE bondholders! BP stockholders). Look into the underlying information of what you are investing in. Here’s a sample statement by one bank: “Can banks be a force for good in the world? We think so. After all, when you deposit money in the bank, it doesn’t just sit there. Banks send as much as 90 percent of customer deposits back out into the world. At Bank of the West, your deposits do not finance Arctic drilling, coal-fired power plants, fracking, or big tobacco. Instead, they are helping fund more than $1 billion in renewable energy projects.”
Today, Idahoan, you can change the future for the better just by your banking and investing choices. Call your broker and ask for fossil-free mutual funds to invest in!
