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BlackRock’s stranded assets

ImpactAlpha, Aug. 6 – BlackRock owned 5% of PG&E before the California utility collapsed in what the Wall Street Journal called “The first climate-change bankruptcy.” BlackRock was also the biggest loser ($19 billion) in General Electric’s fall from grace, after the company bet big on fossil fuels as energy market began to shift to renewables.

Over the past decade, BlackRock’s fossil fuel investments have lost investors $90 billion in value, according to new research from the Institute for Energy Economics and Financial Analysis. Three-quarters of those losses came from investments in four companies: ExxonMobil, Chevron, Royal Dutch Shell and BP.

As the world’s largest asset manager, with a $6.5 trillion portfolio, BlackRock “has the power to lead globally to address climate risk, yet to-date it remains a laggard,” says Tim Buckley of IEEFA. “It is BlackRock’s fiduciary duty as a global leader to lead.”

  • Passive management. BlackRock maintains it has little control over its $4.3 trillion in passively managed investments, according to IEEFA. But, “passive funds should not mean passive owners,” concludes a Create Research report of 127 pension plans. The survey found that more than a quarter of those surveyed said index managers were not meeting their stewardship goals. BlackRock peers Amundi, Norges Bank, AP4, Storebrand and KLP have all developed low carbon investing strategies that provide comparable-risk adjusted returns.
  • Risk mitigation. Environmental, social and governance, or ESG, criteria may help investors reduce their exposure to such climate risks. In the case of PG&E, the company had long been warning of its climate-related risks; ESG investment managers had taken heed. Of the roughly 1,200 sustainable equity funds tracked by Bloomberg, just 34 held shares of PG&E. The percent of BlackRock’s total assets allocated to environmental, social and governance, or ESG, funds: 0.8%. That leaves 98.2% exposed to uncompensated, but not unforeseen, risks (see, “As assets flow to ESG investing, investors on the sidelines face hidden risks).

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