BlackRock is the canary in the coalmine
Its decision to dump coal signals what’s next – John Quiggin
The following item has been extracted from an article by Prof John Quiggin appearing in The Conversation on 16 January 2020 .
The announcement by BlackRock, the world’s largest fund manager, that it will dump more than half a billion dollars in thermal coal shares from all of its actively managed portfolios, might not seem like big news.
Announcements of this kind have come out steadily over the past two years.
Virtually all the major Australian and European banks and insurers, and many other global institutions, have already announced such policies.
According to the Unfriend Coal Campaign, insurance companies have stopped covering roughly US$8.9 trillion of coal investments – more than one- third (37%) of the coal industry’s global assets, and stopped offering reinsurance to 46% of them.
Blackrock matters because it is big.
The announcement matters, in part because of Blackrock’s sheer size.
It is the world’s largest investor, with a total of $US7 trillion in funds under its control. Its announcement it will “put climate change at the centre of its investment strategy” raises questions about the soundness of smaller financial institutions that remain committed to coal and to a carbon-based economy.
Blackrock is also important because its primary business is index funds, that are meant to replicate entire markets.
So far these funds are not affected by the divestment policy.
BlackRock’s iShares United States S&P 500 Index fund, for instance, has nearly US$23 billion in assets, including as much as US$1 billion in energy investments.
But the contradiction between the company’s new activist stance and the passive replication of an energy-heavy index such as Australia’s is obvious. The pressure to find a solution will grow.
In time, the entire share market will be affected.
One solution might be for large mining companies such as BHP to dump their coal assets in order to remain part of both Blackrock’s actively managed (stock picking) and passively managed (all stocks) portfolios.
Another might be the development of index funds from which firms reliant on fossil fuels are excluded. It is even possible that the compilers of stock market indexes will themselves exclude these firms.
Blackrock chief executive Laurence Fink noted that climate change has become the top issue raised by clients. He said it would soon affect all investments – everything from municipal bonds to mortgages for homes.
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