'A fundamental reshaping of finance': The CEO of $7 trillion BlackRock says climate change will be the focal point of the firm's investing strategy
The CEO of $7 trillion investment firm BlackRock said in his annual letter on Tuesday that climate change will become the center of the firm's investment strategy The risk from climate change will force businesses and investors to shift their strategies, leading to a "fundamental reshaping of finance," Larry Fink said. Fink warned that risk will cause a "significant" reallocation of capital "sooner than most anticipate." He called on governments, companies, and investors to combat climate change. This article is part of the Better Capitalism series, which tracks the ways companies and individuals are rethinking the economy and role of business in society.
Climate change will be at the center of $7 billion BlackRock's investment strategy, the firm's CEO Larry Fink announced on Tuesday. In his annual letter to CEOs, Fink said that climate change will lead to a "fundamental reshaping of finance" and that the evidence on climate change is "compelling investors to reassess core assumptions about modern finance." The move could signal a significant shift in investment banking and business as a whole. Fink's influential letter is highly regarded by CEOs and finance executives, and often sets the tone for the industry. Fink warned that aside from the physical risks, climate change could also impact anything from municipal bonds to 30-year mortgages to inflation and interest rates. "Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk," Fink said in the letter. He warned companies, investors and governments that "in the near future — and sooner than most anticipate — there will be a significant reallocation of capital." BlackRock will start integrating climate change as a central part of its investing by exiting investments with a "high sustainability-related risk," such as thermal coal producers, Fink said. The firm will also launch new investment products that screen fossil fuels and more broadly make sustainability "integral" to the way it builds investment portfolios. "Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors," Fink said. "And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward." A call for help from others Aside from BlackRock's changes in strategy, Fink also called on governments and other companies around the world to combat climate change. "While government must lead the way in this transition, companies and investors also have a meaningful role to play," Fink said. "Every government, company and shareholder must confront climate change." He predicted that companies who shift to a more climate-friendly strategy will reap the benefits. "Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders... will attract investment more effectively, including higher-quality, more patient capital," he said. Fink also mentioned that BlackRock will work to be more transparent, adding that firm will use frameworks like the Sustainability Accounting Standards Board (SASB) as a set of standards for reporting sustainability information. Beyond that, Fink said BlackRock will use its position as an industry leader and proxy-voting titan to impress environmentally sustainable practices. "Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable," Fink said. He continued: "We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them." SEE ALSO: Ray Dalio says that everybody is missing the key metric for saving America's economy from inequality — productivity Join the conversation about this story » NOW WATCH: Ray Dalio on the next financial crisis, how he started his own hedge fund, transparency at work, and more
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BlackRock execs lay out how last year's $1.3 billion eFront deal is setting up Aladdin to crack into a massive alternative-investment opportunity
BlackRock's Aladdin is eyeing the alternative investments space as a major growth opportunity following its integration...BlackRock's Aladdin is eyeing the alternative investments space as a major growth opportunity following its integration of eFront onto its risk-management platform. Acquired in May 2019, eFront is software for the management of alternative investments. Sudhir Nair, global head of the Aladdin business, told Business Insider that asset managers are increasingly focusing on alternative investments, but struggle to analyze risks around private investments. "We think the distinction between the two is going to increasingly erode over time in terms of the need for risk transparency and efficient operating models," Nair added. Click here for more BI Prime stories. The risk-management platform widely used by investors across Wall Street is positioning itself to address a growing push into alternative investments. After completing its $1.3 billion acquisition of eFront in May 2019, BlackRock has finished integrating the alternative investment management software into the firm's crown jewel, Aladdin. The new platform, which is currently being piloted with some clients, offers transparency into both the public and private markets and speaks to the world's largest asset manager's goal of turning Aladdin into the "language of portfolios." "We think the distinction between the two is going to increasingly erode over time in terms of the need for risk transparency and efficient operating models," Sudhir Nair, global head of the Aladdin business, told Business Insider. "We're on a mission, at a very high level, to have alternatives as an asset class become less alternative through the integration work that we're doing." Read more: BlackRock is eyeing aggressive growth for its Aladdin platform, and says it could manage risk for the entire asset management industry by 2025 BlackRock is well positioned to capitalize on a rise in alts From private equity and venture capital to hedge funds and real estate, alternative investments provide a way for firms to diversify beyond stocks and bonds. When BlackRock announced its deal to buy eFront in 2019, it noted that that the $9 trillion alternative asset management industry presented a huge opportunity for risk and investment management tools. And earlier this month, Business Insider reported on an internal memo at UBS, one of the largest wealth managers in the world, that detailed a push to meet surging demand from family offices and wealthy individuals clamoring for access to private markets. However, putting capital into alternatives doesn't come without its risks. Visibility into the investment is often much more difficult compared to those made in public markets. Offering clarity about exposures across a portfolio is where Aladdin has thrived. Some of the biggest growth the platform saw was in the years following the financial crisis, as firms wanted a better sense of correlations between their various investments. And so as more money pours into alternatives, BlackRock is banking on investors looking for the same transparency they're accustom to in the public markets be made available to them for private deals. "Being able to demonstrate an ability to truly understand from a risk perspective what that allocation to alternatives entails is going to be more and more important," Nair said. "The most recent period of market volatility has really shone a spotlight on that." Read more:The machines running a huge chunk of public markets will only get smarter, and that's putting private equity and stock-pickers on a collision course Inside BlackRock's integration with eFront The marriage of Aladdin and eFront hasn't just been about integrating the latter into the former. The past year has also been about building out new capabilities thanks to the strengths of both systems, Nair said. While eFront has 20 years of experience helping firms manage alternative investments, risk tech was never a focus, he said. As a result, a combination of Aladdin's experience with risk management and eFront's deep knowledge of private-markets modeling and data provided the template for a deeper, more complete view into alternatives that neither provided on their own. "This level of depth provides clients the transparency and the capability to assess risk into private markets that we would have otherwise not been able to do today," Tarek Chouman, head of Aladdin business development and former CEO of eFront, told Business Insider. The importance of offering those insights is apparent in BlackRock's own backyard. The firm has continued to put resources towards teams chasing alternative investments. Nair said that's a huge benefit. BlackRock usage of Aladdin internally has offered great feedback on what does and doesn't work well. "We're big believers that we have to eat our own cooking," he added. "[BlackRock] is a great sandbox environment as we build new capabilities to try them out in." The benefits go beyond risk analysis Constant evolution has been a staple of Aladdin, which was first launched in 1988. In recent years, it rolled out Aladdin Studio, a set of tools that allows engineers to open up and customize the platform to their liking. The $6.5 trillion asset manager has also previously looked to hire for a role specifically focused on managing tech projects for the platform. BlackRock CEO and founder Larry Fink has previously called Aladdin, which helped the firm's technology services group generate nearly a $1 billion in revenue in 2019, a tech startup. Understanding portfolio risk isn't the only thing that's helped the platform grow. Aladdin has also made efforts to provide better connectivity between asset managers and asset services. eFront has been active in this department as well, with a large client segment base consisting of alternative asset services. Nair said those would be avenues the firm would continue to explore. "There's definitely an opportunity along the lines of what I described of building greater connectivity between asset managers and asset servicers for public markets, which Aladdin has been focused on, to do the same with private markets, leveraging eFront's existing relationships with asset servicers," Nair said. Read more: Larry Fink, CEO of the world's biggest asset manager, says BlackRock's massive Aladdin platform is really just a tech startupSEE ALSO: The machines running a huge chunk of public markets will only get smarter, and that's putting private equity and stock-pickers on a collision course SEE ALSO: UBS is rolling out the red carpet for ultra-rich people and family offices who want in on private-market deals SEE ALSO: BlackRock is eyeing aggressive growth for its Aladdin platform, and says it could manage risk for the entire asset management industry by 2025 Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
Bank of England governor warns City about need for businesses to fully disclose climate impactBusinesses must...Bank of England governor warns City about need for businesses to fully disclose climate impactBusinesses must improve how they disclose their impact on the environment or risk failing to meet climate targets, the Bank of England governor, Mark Carney, warned the City on Thursday.Without disclosure rules that allow investors to compare how businesses are meeting the climate challenge, the world risks missing targets to be carbon neutral by 2050, Carney said. Continue reading...
signalled that it would start moving its 7 trillion USD away from fossil fuels due to...signalled that it would start moving its 7 trillion USD away from fossil fuels due to climate change risk