With recent news breaking that Barron’s fourth-annual ranking of big-cap equity funds receiving a “high” or “above average” sustainability rating from Morningstar substantially outperforming those with lower sustainability ratings, you might be forgiven to think sustainable investing has finally hit its stride.
And it might well have, if the recent letter from Larry Fink, chairman of institutional investor Black Rock Inc., warning against the mounting dangers of climate change, is any indication. In the same letter, Fink announced Black Rock was going heavily into sustainable investing, noting the firm’s actively-managed funds were in the process of divesting stocks or bonds of companies that generate more than 25% of their income from thermal coal production. He also noted that companies with high Environmental, Social and Governance (ESG) risks, such as coal companies should be excluded from ESG-driven benchmarks.
Fink said he would double Black Rock’s exposure to 150 ESG exchange-traded funds (ETFs) over the next few years and will offer ETFs that will exclude fossil-fuel producers. He said he would work with index providers to expand their ESG offerings. Ultimately, Fink noted that a transition to a carbon-free economy would take place over the course of decades. During that time, Black Rock would continue to hold an exposure to hydrocarbon assets.
Black Rock’s move might mean further bad news for already pummelled coal stocks. In response to the announcement by Black Rock, which has almost USD 7 trillion assets under management, Moody’s Investor Service warned that coal companies would have to “express more financial conservatism in 2020.”
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