Finance & Investment Circular Economy Organizational Governance

BlackRock ‘Anticipates’ 75% of Portfolio Edging Toward Net Zero by 2030

While the announcement from the world’s largest asset manager could potentially have significant influence on lowering global emissions, BlackRock’s passive approach is a missed opportunity to actively drive the transition to a low-carbon, net-zero economy.

Published 2 years ago | About a 6 minute read

Image: Johannes Plenio/Pexels

On Thursday, BlackRock announced that by 2030, at least 75 percent of its corporate and sovereign assets managed on behalf of clients will be invested in issuers with science-based targets or equivalent.

“Currently, approximately 25 percent of BlackRock assets under management (“AUM”) with respect to corporate and sovereign issuers is invested for clients in issuers with science-based targets or equivalent. As the transition proceeds and issuers and asset owners continue to position themselves in front of it, we anticipate that by 2030, at least 75 percent of BlackRock corporate and sovereign assets managed on behalf of clients will be invested in issuers with science-based targets or equivalent.”

Coming from the world’s largest institutional investor, this commitment could potentially have significant influence on lowering global emissions. The actual impact of the target, however, depends on whether BlackRock implements guidelines to ensure that the heavy emitters in its portfolio are explicitly covered by its goal.

BlackRock’s expectation that 75 percent of its corporate and sovereign assets will align with science-based climate goals by 2030 potentially “sets a new bar that could signal to the rest of the market that the investor transition to a net-zero emissions economy is well underway,” says Mindy Lubber, CEO and president of sustainability nonprofit Ceres.

“There’s no question that the transition to a net-zero economy is happening apace and all investors would be wise to adjust their investment strategies accordingly,” Lubber said in a statement. “When the largest asset manager in the world ups its goal from 25 percent of such assets invested in science-based-target issuers to 75 percent of those assets, others should take note. The climate crisis is a financial risk that will continue to affect valuations.”

But not all stakeholders share Ceres’ optimism about the strength of BlackRock’s statement. As finance watchdog group Reclaim Finance points out, without concrete policies, BlackRock risks providing cover for the worst climate actors to continue their polluting business as usual. Left unaddressed, this will create a loophole in the financial giant’s net-zero commitment that will allow runaway emissions that could push the world past 1.5°C global warming.

Reclaim Finance asserts BlackRock must also provide more details on how it will evaluate if companies are actually achieving climate targets. It is crucial that companies’ commitments require halving emissions by 2030, rather than relying on offsets and other unproven technologies.

“BlackRock must ensure that the bulk of the companies that it invests in have at least halved their overall emissions by 2030,” says Lara Cuvelier, Sustainable Investment Manager with Reclaim Finance. “If BlackRock doesn’t disclose the concrete and timebound requests made to companies, this announcement is another smokescreen. The world’s largest asset manager cannot get away with vaguely defined commitments. It must act with urgency, especially with respect to the fossil fuel expansionists in its portfolio that are leading us to climate catastrophe.”

While more and more banks have begun to mobilize around climate change and have made individual net-zero pledges, their continued investment in polluting sources of energy flies in the face of those pledges — and external pressure is mounting for them to put their money where their mouths are.

In December, British banking giant HSBC set out a detailed policy to phase out the financing of coal-fired power and thermal coal mining by 2030 in EU and OECD markets, and worldwide by 2040 — in accordance with International Energy Agency recommendations. In recognition of the rapid decline in coal emissions required for any viable pathway to 1.5°C , the plan will see HSBC phasing out finance to clients whose transition plans are not compatible with the bank’s net zero by 2050 target. Given HSBC’s substantial footprint across Asia, and the region’s heavy reliance on coal today and its rapidly growing energy demand, HSBC recognizes it has a critical role to play in helping to finance the region’s energy transition from coal to clean. HSBC says it will expect its clients to lay out credible transition plans for the next two decades to diversify away from coal-fired power production to clean energy technologies.

So, it is possible for financial institutions to use their power and influence to actively guide a clean-energy transition — yet BlackRock continues to insist its role in the net-zero transition is merely “as a fiduciary to our clients … to help them navigate investment risks and opportunities, not to engineer a specific decarbonization outcome in the real economy.”

In his annual CEO letter in January, BlackRock CEO Larry Fink stressed that — while decarbonizing the global economy is “the greatest investment opportunity of our lifetime, … divesting from entire sectors will not get the world to net zero.” This week’s statement echoes this sentiment:

“We expect to remain long-term investors in carbon-intensive companies, because they play crucial roles in the economy and in a successful transition. The success of these companies will be critical to the global economy, the world’s low-carbon ambitions and our clients’ long-term financial goals. We do not pursue broad divestment from sectors and industries as a policy — particularly as a portfolio fully divested of such sectors in the near term may be at odds with enabling an orderly transition to a net-zero economy in the long term.”

BlackRock signed on to the Net Zero Asset Managers initiative in March 2021. Under this initiative, asset managers have committed to supporting the goal of net zero emissions by 2050 or sooner, in line with efforts to limit warming to 1.5° Celsius, and to show progress on what percentage of their assets are covered by this goal. According to BlackRock’s target submission to NZAM, the scope of the target covers $7.3 trillion in assets under management — excluding the firm’s real assets, infrastructure and private equity holdings.

“The sheer size of the commitment is significant as all investors seek to address climate risks across capital markets,” Lubber said. “We will be working with BlackRock and other investors to develop the data and methodologies to focus on the asset classes excluded from BlackRock’s target and to measure the real emissions reductions that this alignment target represents.”

But if the world’s largest asset manager continues to hedge its bets against active decarbonization, the transition to a net-zero, clean-energy economy will likely not take place with the urgency that is needed to avert climate disaster.