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Breakingviews - Larry Fink flexes what green muscles he has

Laurence Fink, founder and chief executive officer of BlackRock, Inc. speaks during the Reuters Global Investment Outlook Summit in New York, U.S., November 13, 2017.

LONDON (Reuters Breakingviews) - Larry Fink is flexing what green muscles he has. A year ago, the BlackRock boss used his annual letter to chief executives of companies in which the world’s biggest asset manager has a stake to assert that sustainable investing was the way forward. His latest missive, published on Tuesday, develops the theme in a way that demonstrates how BlackRock is simultaneously potent and powerless.

Fink’s main intervention is to require companies to show how they will reduce their carbon emissions to zero by 2050. If they all follow the $8.7 trillion asset manager’s instructions, it would go a long way to solving climate change. The more interesting part of the letter, though, is what Fink intends to do with laggards.

BlackRock faces regular criticism because its funds continue to hold billions of dollars of investments in companies with coal and other carbon-heavy assets. Fink says these firms and others that drag their feet will face “heightened scrutiny”, with the implication that BlackRock will sell out if their managements don’t come up with a credible strategy. Given that New York pension funds just offloaded $4 billion of dirty assets, this threat is hardly radical.

The drawback is that dumping carbon-heavy investments doesn’t help the planet if these assets end up in the hands of unlisted companies or governments that don’t share the imperative to do something about climate change. That’s why Fink’s call for private companies and public debt issuers to also disclose their decarbonisation strategies could be significant. If this catches on, polluters will have fewer places to hide. BlackRock, which oversees over $1 trillion of actively managed debt, has some scope to force the issue.

The weak link in Fink’s strategy is that 90% of BlackRock’s $4.4 trillion equity portfolio is held by index-tracking passive funds which cannot sell if there are climate objections. That makes it all the more important that the group uses its clout to vote against foot-dragging executives at annual general meetings. Fink’s letter underlines a pre-existing commitment to support more shareholder resolutions. But he will need to show that he is actually doing so this year. If he doesn’t, BlackRock’s green physique will face deserved ridicule.

Breakingviews

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