BlackRock CEO Larry Fink, who views climate change as a key risk for the global economy, expects a “tectonic shift” in passive investing once more public companies disclose their carbon footprint.
“The tectonic shift in finance” to address climate change is not going to occur on the active side, which is already addressing the issue, but on the passive side after more companies release their TCFD (Task Force on Climate-related Financial Disclosures) and SASB (Sustainability Accounting Standards Board) disclosures, Fink said in a Brookings Institution webinar hosted by Sanjay Patnaik, the director of its Center on Regulation and Markets.
With more disclosures from public companies, BlackRock, the world’s largest asset manager with close to $9 trillion in assets (including more than $2 trillion in passive assets), and other asset managers will be able to customize sustainable indexes for investors, stripping out those companies that don’t align with their values.
“We’re going to be able to design and democratize indexes or portfolios that closely approximate the liability you’re looking for but with more sustainable attributes, and that will be the tectonic shift in finance,” Fink said.
He stressed, however, that disclosures by public companies won’t be enough to achieve the net zero carbon emissions goal needed to prevent the world from overheating. Private companies, too, will have to make those disclosures.
“If regulation is only going to be for public companies, we are going to see a huge arbitrage, and that arbitrage is existing right now,” he said.
A public company could sell its polluting plant to a private enterprise, which would enhance its sustainability rating but would not reduce carbon emissions in the world, Fink explained.