Any good CFA charterholder knows: information can make the difference between a correct investment strategy and a successful one. That's why it's so important to keep abreast of the latest news and trends in the world of finance and business, because everything moves so fast these days!
In mid-January, the world's largest private equity firm, BlackRock, announced through its CEO Larry Fink that environmental and climate risks would henceforth be at the heart of its investment decisions. And when BlackRock points the way, the CEOs of the companies concerned follow...
"[...] Awareness [of climate change] is evolving rapidly, and I believe we are on the cusp of a fundamental rethink of finance," stated Larry Fink in his letter to the heads of companies in which BlackRock invests the approximately USD 7.5 trillion in assets it manages around the globe. BlackRock's weight in the world of finance and investment suggests that radical changes are in store for the months and years to come. What can we expect in this respect?
More transparency
If climate change is on the agenda, it's also, and above all, the concept of corporate social responsibility (CSR) that has just been brought to the fore by Larry Fink and BlackRock. And CSR means transparency: "Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders [...] will attract investment more effectively, including higher-quality, more patient capital", warned BlackRock's CEO in his January missive. To this end, the firm has also committed to disclosing, on a quarterly rather than annual basis, the content of its votes at annual shareholder and investor meetings, as well as the issues discussed with the boards of companies in which BlackRock invests. Another step in the right direction!
Less passive, more proactive
BlackRock also signals an end to CSR wishful thinking for the companies in which it invests its millions and billions. The firm will eventually double the number of its exchange-traded funds (exchange traded fundor ETFs) focusing on CSR to reach a total of 150. In short, sustainability and CSR will form the future foundation of the financial products now offered by BlackRock. A major trend, did you say?
A price to pay
BlackRock's green promise will come at a cost to investors, however, as management fees for CSR-flavored funds are generally higher than for so-called standard funds. In particular, this is the price to pay for the additional investigations and audits required to ensure that investments comply with CSR principles. However, the proliferation of green funds, to which BlackRock is contributing, may eventually generate economies of scale, bringing the management fees inherent in these portfolios down to competitive levels.
It remains to be seen whether the other two companies making up the so-called Big Three of finance, namely Vanguard and State Street, will be able to resist the enormous pressure created by BlackRock in favor of CSR for much longer. In any case, when money is put at the service of CSR, everyone wins!
Text provided by HEC Montréal
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