Asset Managers Face Brand Pressure on Climate Risk

Asset managers are being pushed to re-think how they are handling climate change and the impact this could have on their brand in response to pressure from other managers and activists.

Yesterday, BlackRock CEO Larry Fink announced in its annual investment letter that made front page news that it would from now on make investment decisions with environmental sustainability as a core goal. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance,” said Fink.

Author and environmentalist Bill McKibben commenting on Twitter said that after years of unrelenting pressure by a small group of activists the move by one of the biggest financial institutes on the planet to begin to acknowledge climate change was a “huge – if by no means final – win for activists.”

BlackRock has been criticized and pressured by climate activists including the Sierra Club for its large investments in fossil fuel stock in particular. And last year Christopher Hohn, founder of TCI Fund Management, an activist hedge fund with $28 billion of assets under management, called out BlackRock for what Hohn termed “greenwashing,” in an article in the FT. “Many large investment managers are full of greenwash. They have appalling voting records on climate change-related matters,” said Mr. Hohn.

Hohn called on asset owners to fire asset managers that don’t require the companies they invest in to disclose their carbon dioxide emissions. TCI outlined its plans “to punish directors of companies that fail to disclose their carbon dioxide emissions in a move that underlines rising investor concerns over climate change and the pressure on boardrooms to respond.”

In a letter to investors, Hohn announced changes to TCI’s own ESG policy but went further than its own investment guidelines and made a clarion call to the rest of the asset management industry that could force radical change on fund managers and their brands.

“Our policy will have the most effect if other investment managers adopt the TCI policy. Asset owners (both of public and private equity) have a key role to play in this because they hire investment managers and hence have influence over them. We believe that this will benefit both investment performance and serve to help the sustainability of the planet,” said Mr. Hohn.

In an accompanying Influence Map titled “Asset Managers and Climate Change: How the sector performs on portfolios, engagement and resolutions”, FinanceMap examined which asset managers lead in filing/co-filing climate resolutions and found only a group of smaller asset managers – Hermes Investment Management, Sarasin & Partners, Walden Asset Management, Trillium Asset Management, and Zevin Asset Management who appear to be doing the “heavy lifting” for the entire industry. All five exhibited leadership in robust engagement with companies on climate change. The full methodology for the report is available here

As BlackRock this week proved, asset managers will need to effect and demonstrate change. Many will be required to re-consider their investment policies and the impact on their brand if they don’t, as well as find ways to communicate to the public and their constituents the actions they are taking in their portfolios to combat climate change.