Hot on the heels of BlackRock CEO Larry Fink’s letter warning global chief executives of climate change market risk, the world’s largest fund manager has released a summary of recommendations for sustainable investment.
In a public policy ViewPoint, BlackRock calls for clarity around the sustainable investing product landscape, simplicity around corporate issuer disclosure and support for an objective ESG (environmental, social and governance) taxonomy for economic activities, facilitating asset owner choice.
At the end of the decade, there was a surge of interest in the incorporation of ESG-related concerns into investment decisions and assets under management (AUM) in ESG mutual funds and exchange-traded funds (ETFs) grew from $453 billion in 2014 to $760 billion in 2018.
This number is expected to grow at an exponential rate and has led to a need for a regulated sustainable finance ecosystem to support wider sustainability-related global policy initiatives and mobilise the huge amount of capital needed to address the risk that climate change poses.
Alongside this, the risk of misleading investment approaches so that asset owners cannot make informed decision, what is known as ‘greenwashing’, must be mitigated. As a result, BlackRock is making an attempt to put sustainability at the core of the way the fund manager manages risk.
This can only be achieved by a common understanding across asset owners, asset managers, other market participants and regulators. “Providing clear, transparent information based on objective metrics will empower informed asset owner choice and be a catalyst to achieving this objective,” the report reads.
While regulation has been a key driver for sustainable investment, a diverse range of labelling and disclosure requirements has muddied the waters.
In addition to organisations like the Financial Stability Board’s (FSB) Task Force on Climate Related Financial Disclosures (TCFD) and the International Organization of Securities Commissions’ (IOSCO) Green Finance Network, central banks have also begun to look at climate risk.
However, while a true single set of global rules or standards are unlikely to emerge soon, BlackRock advises that “the best way to achieve a cohesive set of standards is through clearly articulating the challenges and identifying where policy measures can play a role in fostering alignment around product naming conventions, corporate issuer level disclosure, and the underlying economic activity.”
Further, the BlackRock report posits the Sustainability Accounting Standard Board (SASB) provides a clear set of standards for reporting information across a number of issues but adds that they do not believe there is a ‘one size fits all’ model.
“The good news here is that investor appetite for sustainable solutions continues to grow - indeed, sustainable funds are among BlackRock’s fastest growing. With policy makers, the financial sector, investors and companies working in partnership, the era of sustainable investing can continue to grow and forge a manifest link between critical ESG goals and profitability that will improve societies around the world.”
Sustainable investing will be a central topic of discussion at Finextra’s next interactive workshop in March 2020. Click here for more information.