Climate crisis expected to reshape global finance - Activate World

Climate crisis expected to reshape global finance

World business leaders say that climate change and environmental issues could wreak costly economic and social havoc, reshaping global finance. The World Economic Forum cited climate-related issues as dominant among the top-five likely risks over the next decade. In his annual letter to CEOs, BlackRock chief Larry Fink said: “Climate change has become a defining factor in companies’ long-term prospects.”

Lunchtime Conversations:

  • As millennials and Gen Zers demand jobs that are compatible with their concern about climate change, will workforce climate activism rise? How can companies leverage their environmental credentials to attract talent?
  • The COP 25 climate summit failed to reach an agreement on key issues on the framework of the Paris climate deal. What can business leaders do to persuade the big polluters – China, U.S., Brazil, and India – to end the deadlock on climate negotiations? 
  • President Trump announced the United States would join the One Trillion Trees Initiative launched at the World Economic Forum. How is this move consistent with his repealing and weakening laws aimed at protecting the environment and promoting sustainability?

Noteworthy:

  • Had Mr. Fink moved a decade ago to pull BlackRock’s funds out of companies that contribute to climate change, his clients would have been well served. In the past ten years, companies in the S&P 500 energy sector had gained just 2 percent in total. In the same period, the broader S&P 500 nearly tripled.
  • British hedge fund manager, Christopher Hohn, said that it was “appalling” of BlackRock not to require companies to disclose their sustainability efforts and that the firm’s previous efforts had been “full of greenwash.”
  • Groups, including Amazon Watch, the Sunrise Project, and coalitions of youth activists, have all targeted BlackRock, asking for more action around the global crisis of climate change.

Viewpoint

For the first time, climate-related issues dominated the top-five likely risks over the next decade, according to the World Economic Forum’s (WEF) new annual “Global Risks Report,” which ranks the most urgent risks currently facing the globe. The reportalso cites fears of businesses and governments failing to mitigate climate change, human-caused environmental disasters like oil spills and radioactive contamination, biodiversity loss, and major natural disasters.

BlackRock’s Larry Fink also sounded the alarm on a crisis that he believes is the most profound in his 40 years in finance. In an annual letter to CEOs, he said: “Even if only a fraction of the science is right today, this is a much more structural, long-term crisis.” He intends to encourage every company, not just energy firms, to rethink their carbon footprints.

In recent years, many companies and investors have committed to focusing on the environmental impact of business, but none of the largest investors in the country have been willing to make it a central component of their investment strategy.

In that sense, Mr. Fink’s move is a watershed — one that could spur a national conversation among financiers and policymakers. However, it’s also possible that some of the most ardent climate activists will see it as falling short.

BlackRock’s decision may give CEOs impetus to change their own companies’ strategy and focus more on sustainability, even if it cuts into short-term profits. Such a shift could also provide cover for banks and other financial institutions that finance carbon-emitting businesses to change their policies.

We hope BlackRock’s statements converts to action. Employees and other stakeholders will need to hold them accountable. 

Sources: CNBC, FortuneThe New York TimesYahoo Finance

Photo by Ben Amaral on Unsplash