Governments and the private sector must work together to pursue a transition that is both fair and just – we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world. We need to be mindful of the economic, scientific, social and political realities of the energy transition. Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today’s essential uses of hydrocarbons. Under any scenario, the energy transition will still take decades. This challenge cannot be solved without a coordinated, international response from governments, aligned with the goals of the Paris Agreement. Over the next few years, one of the most important questions we will face is the scale and scope of government action on climate change, which will generally define the speed with which we move to a low-carbon economy. In a letter to our clients today, BlackRock announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management exiting investments that present a high sustainability-related risk, such as thermal coal producers launching new investment products that screen fossil fuels and strengthening our commitment to sustainability and transparency in our investment stewardship activities. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.Īs a fiduciary, our responsibility is to help clients navigate this transition. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. These questions are driving a profound reassessment of risk and asset values. They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios. Indeed, climate change is almost invariably the top issue that clients around the world raise with BlackRock. Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

Research from a wide range of organizations – including the UN’s Intergovernmental Panel on Climate Change, the BlackRock Investment Institute, and many others, including new studies from McKinsey on the socioeconomic implications of physical climate risk – is deepening our understanding of how climate risk will impact both our physical world and the global system that finances economic growth.

The evidence on climate risk is compelling investors to reassess core assumptions about modern finance. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. And we have a deep responsibility to these institutions and individuals – who are shareholders in your company and thousands of others – to promote long-term value.Ĭlimate change has become a defining factor in companies’ long-term prospects. It belongs to people in dozens of countries trying to finance long-term goals like retirement. As an asset manager, BlackRock invests on behalf of others, and I am writing to you as an advisor and fiduciary to these clients.

Larry fink letter to ceos 2020