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$7 trillion could save the world but not in the way you might think

26 February 2020 7:15 PM
Tags:
Digital technology
BusinessUnusual

A billionaire asset fund manager has told global CEO’s to focus on climate change.

The founder, Chairman and CEO of BlackRock, a global asset management company, is Laurence (Larry), Fink.

He founded the company in the 1980s and it went public in the late 1990s. The assets under management have grown to over $7 trillion and its share price has made Fink a billionaire. Their success is based in part on taking a long term view of returns and an investment it is data gathering tools under the name Aladdin.

Over the last half a dozen years, the CEO has posted a letter to global CEOs many of which run companies BlackRock has a sizable stake in. In the letters, the company has set out what it thinks should be addressed to return more value to those that invest with BlackRock through the success of the companies they invest in, but rather than advocating for profits at all costs, they have asked for the opposite. Sustainable growth and returns that require more consideration for their purpose, the way they treat staff, the impact on the communities in which they operate and most recently their actions to reverse climate change.

It might prove to be a tipping point that allows future generations to look back and credit the “Boomer” for finally having moved corporates to become part of the solution and not the problem.

BlackRock is not calling for a wholesale sell-off of climate-damaging companies, rather they seek to pressure them to use the profits from fossil fuels that made them market leaders to invest and develop the alternatives.

It makes sense to have the polluters work on the cleanup, but often a change of that nature is hard for a company set in its ways and new investments in companies focused on the future may get more traction quicker. BlackRock has funds to cater to both options. Placing bets across the board is more likely to return a profit in the long term rather than a quick win that does not last.

The focus on the long term is not surprising as they cater to those looking to invest for their retirement or for state institutions which effectively need to last forever. For Millenials and Gen Z who are now entering the workforce in growing numbers, they are looking to cash out in the 2070s which is when the worst-case scenarios for climate change suggest it would be a terrible time to retire if we continue with business as usual.

On the flip side, the largest population cohort, the baby boomers are now settling into retirement. But with long lifespans don’t see long term slow growth as enough to fund the lifestyles they hoped for. The pressure for quick returns versus the need to account for the bad actions in the past and the huge cost to mitigate it appears to make future generations pay for the sins of the past ones.

Rather than looking to exclude those groups, BlackRock appears to make the argument that there may be a way to not penalise the older generations too much but also not disadvantage the future generations too much either.

Both will need to work on reducing the reliance on carbon while looking to generate growth from the alternatives.

Consider the world’s largest cities at the turn of the last century. We tend to imagine that the car came along as a great innovation replacing the trusty and much-loved horse. While it is true we were heavily reliant on horses, cities were facing a crisis in dealing with their pollution both from their manure and the numbers that would die on city streets each day. The impact of horse manure for pedestrians, water sources, sewers and of course the smell was threatening life in the city. Cars did not solve all the problems, initially, they introduced more. Collisions and pedestrian deaths spiked as there were no traffic rules.

But for all the chaos the two methods of represented, there was little doubt that the age of the horse was over and that we would have to fix the problems with the car.

A century later and it is that solution that is now the problem that threatens to overwhelm us. Once again the solution is not without its challenges, but for those that still want to explain away our impact and the consequence of our fossil fuel dependancy they are no better than horse fans in a sea of faeces. But horses did not disappear overnight and neither will our reliance on carbon-producing activities.

We now have the science community, economists, activists, global environmental agencies and finally perhaps global corporates joining forces to face and fix the planet.

There is still no guarantee that it will succeed but if you are the investing type, the odds of a good return have just improved significantly.


26 February 2020 7:15 PM
Tags:
Digital technology
BusinessUnusual

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