Larry Fink, chairman and chief executive of BlackRock, said there will be a tectonic shift in the customization of indexes over the next three years as environmental, social and governance disclosure improvises.
He was speaking with Mary Schapiro, former chair of the US Securities and Exchange Commission in a webinar hosted yesterday by The Brookings Institution, a nonprofit public policy research organization.
Fink said: “There will be a revolution as ESG disclosure increases and we customize indexes to cover specific liabilities. There will be a tectonic shift in passive in the next three years.”
In 2020 BlackRock had $68bn of net inflows into sustainable investing, growth of more than 60% year-on-year, as the asset manager launched more than 100 ESG products, including exchange-traded funds through iShares, its ETF arm. Fink has said that BlackRock’s $200bn in sustainable assets is expected to grow to $1 trillion by the end of this decade.
Mary Schapiro, former chair of the US Securities and Exchange Commission, said on the webinar that climate risk is financial risk and could impact financial stability. Schapiro is now vice chair for public policy and special advisor to the founder and chairman at Bloomberg and leads the Task Force on Climate-Related Financial Disclosures Secretariat.
The TCFD issued a voluntary framework for reporting in 2017 which Schapiro said has been endorsed by more than 1,800 companies and 10 governments. In addition four governments have said they will make TCFD reporting mandatory.
Schapiro said: “TCFD is a foundation but we need global standards that provide comparability for investors. In the US the SEC has all the power they need to make a real impact as they can set standards for disclosures by public companies.”
She continued that a taxonomy for green finance is also important to avoid “greenwashing”, when corporates falsely advertise that they have environmentally friendly policies.
“IOSCO (International Organization of Securities Commissions) is very focussed on greenwashing and we will see more action on that front,” said Schapiro.
Fink said the Financial Accounting Standards Board and TCFD have helped develop better ESG data and reporting at a corporate level.
“We are now at the point where we can judge companies more successfully,” he added.
However he warned that public companies alone will not be able to meet the Paris climate change targets as wider society needs to change including cities, municipalities and private companies.
“If only public companies have to meet ESG regulations there will be a huge arbitrage and more will go private,” Fink said.
He continued that European energy companies are already selling carbon intensive businesses to private companies. “The companies look better but this is not better for the world,” Fink warned.