Bretton Woods could use a green transition reboot

3 minute read

Larry Fink, Chief Executive Officer of BlackRock, takes part in the Yahoo Finance All Markets Summit in New York, February 8, 2017. REUTERS/Lucas Jackson

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LONDON, July 11 (Reuters Breakingviews) - Venice is a good place to raise the alarm on climate change. Politicians would be hard-pressed to find cities as suitable as “la Serenissima” in which to contemplate streets filled with water. Billionaire BlackRock (BLK.N) boss Larry Fink isn’t an obvious champion of the little guy threatened by rising tides, but his speech as part of the G20 in the Italian city deserves pondering.

Fink brought three key points to the assembled policymakers on Sunday. The first two are already being talked about. If big companies offload their most carbon-intensive activities, that will be good for their personal ESG scores, but not for the planet in general. Private and state-owned companies must also be subject to the same decarbonisation scrutiny.

Second, governments need to invest in zero-carbon solutions and rapidly wean their citizens off fossil fuels. If they don’t dampen demand, rapidly recovering economies post-pandemic will send oil prices higher than their current lofty $75 a barrel. That could make it even harder for states to decarbonise – especially poor ones – and increase inequality.

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Fink’s third theme addresses the looming green problem with emerging markets. States have higher debt levels, and developing ones have lower vaccination rates so will take longer to recover. If they aren’t assisted in their transition from carbon, it won’t happen. Step forward, the World Bank and the International Monetary Fund, created almost 80 years ago at the Bretton Woods Conference to aid recovery following World War Two.

Fink reckons these institutions funded and controlled by rich countries need to reimagine their roles for sustainable investing. He has a point. Given that an estimated $9 trillion is needed just for emerging markets to derive two-thirds of their energy from renewable sources by 2050 – the same amount that BlackRock currently manages – pledges for developed economies to pay $100 billion a year to emerging ones are insufficient. Multilateral lenders need to step in and provide some sort of first-loss insurance for private sector capital to flood in.

This would require a major shift. The IMF, for example, has attracted criticism for the way it handled financial crises in Greece and Argentina, lumping too much strain on taxpayers and the private sector, respectively. But the limp promises from the UK’s recent G7 conference in Cornwall fell lamentably short of tough action. However self-serving Fink’s comments may appear, when the world’s biggest asset manager says change is needed, it merits a listen.

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- Larry Fink, BlackRock’s chairman and chief executive, encouraged policymakers and others gathered at the Venice International Conference on Climate on July 11 to rethink the roles of the International Monetary Fund and World Bank in helping the global economy limit global warming to 1.5 degrees centigrade and achieve net zero carbon emissions by the middle of the century.

- “We need global solutions and international organizations that are willing to mitigate the risks of investing in emerging markets,” Fink said.

- “If we’re going to attract the hundreds of billions of dollars of private capital for brownfields and other sustainable projects in the emerging markets, we need more solutions like those used in mortgage-backed securities where some degree of losses is absorbed before they impact private investors.”

- Separately, BlackRock said it secured more than $250 million in commitments from a consortium of global institutional investors, governments and philanthropies for the Climate Finance Partnership, a finance vehicle focused on investing in climate infrastructure across emerging markets in order to accelerate the global transition to a low carbon economy.

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Editing by Rob Cox and Amanda Gomez

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