Short n Sweet: 16 January 2020 - Larry's letter confronts climate risk

Larry’s letter confronts climate risk, BlackRock shakes up investing strategy

The CEO and chair of BlackRock – the US-based investment management firm that manages nearly $7tn in assets – has said climate risk will lead to a “fundamental reshaping of finance”.

Larry Fink’s annual letter to CEOs plus the announcements of sweeping changes at his firm were described as a ‘watershed’ by the New York Times, which said the changes “could reshape how corporate America does business and put pressure on other large money managers to follow suit.” 

Fink’s letter argues that “every government, company, and shareholder must confront climate change” and warns that climate risk will lead to “significant reallocation of capital”.

BlackRock is now cutting out companies that get more than 25% of revenues from thermal coal production from its actively managed portfolios, and will double the number of sustainability-focused exchange traded funds it offers, the Financial Times reports. The fund manager will also push companies to disclose climate risk and vote against management at companies that do not make sufficient progress to account for those risks.

The investment giant has previously been heavily criticised for dragging its feet on climate action. Pressure from clients has also driven the changes: Fink told the New York Times he now gets “bombarded with climate questions from investors” wherever he goes. In his letter he writes: “Climate change is almost invariably the top issue that clients around the world raise with BlackRock.”

• Read: The great climate confusion: Why social enterprise is still figuring out its role in the crisis

‘Worrying’ gap between commitment and action among FTSE 100 companies 

Consumer goods firm Unilever maintained its reputation for sustainability this week, topping a new ranking of corporate responsibility – but the FTSE 100 as a whole demonstrates “a worrying shortfall” in commitments to people and planet.

The Responsibility100 Index, published by Tortoise Intelligence on Tuesday, ranks FTSE 100 companies by their commitment to the Sustainable Development Goals, and measures the gap between what companies say and what they do on corporate responsibility.

Almost a third of the 100 increased their carbon emissions last year. And, for every £1,000 of revenue, the average FTSE 100 firm spends just £1.39 on charity or community projects. Broadcaster ITV is the most generous, donating £13.94 for every £1,000 earned.

Unilever was named most responsible company overall – despite being one of the biggest emitters and plastics producers on the index. It has cut manufacturing emissions by 18.8% and performs well on other key factors, including gender equality, according to the report’s authors.

In second and third place overall are drinks company Diageo and Vodafone Group. The top-ranking supermarket is Tesco (in 50th place) and the best bank is named as Lloyds (17th).

UK’s charity watchdog encourages responsible investing, opens consultation

The UK’s Charity Commission has “encouraged” charities to consider whether their investments are consistent with their organisation’s aims.

In a blog published yesterday the industry watchdog says “often there won’t be an easy answer” when it comes to decisions about responsible investing, but that it wants “to ensure that others are not shying away from this due to a lack of awareness or the area being seen as too difficult.” It is calling for input from trustees, investment managers and others on the potential barriers preventing responsible investment.

A coalition of voluntary sector groups seeking a definitive ruling from the courts on trustees’ duties in respect of ethical investment welcomed the commission’s initiative, according to The Guardian, but is still pushing for the law to be updated. Luke Fletcher, a partner at law firm Bates Wells, which is working with the coalition, told the paper: “Charities exist to benefit the public, not to advance their own financial interests. So we think a court needs to clarify what is expected of charity trustees in this new situation.”

Investment assets of the UK’s top 5,000 charities are worth £116bn, according to Charity Financials.

• Read: Coalition demands landmark ruling on £63bn of charity investments for public benefit

Data and tech specialists needed for better impact reporting 

Progress in how organisations report their environmental or social impact will be insufficient unless there is “significant” collaboration with data and technology providers. 

Published on Tuesday, Technology-enabled Impact Reporting across the Investment Chain calls for organisations and investors to invest more in systems and people to deliver transparent, consistent, comparable impact measurement and reporting. 

The report was commissioned by the Social Impact Investing Implementation Taskforce (now the Impact Investing Institute) and sponsored by Deloitte and the DCMS.

More and more organisations are making commitments to social or environmental impact, said Sarah Gordon, CEO of the Impact Investing Institute, said: “But for this commitment to be truly meaningful, organisations need to set clear targets and measure their progress towards them. Only through carefully considered impact reporting can this be achieved. 

“This report... is a clarion call for all organisations to clarify their most material impacts, design measurement and reporting approaches and to do so collaboratively, for the benefit of us all.”

• Read our interview with Sarah Gordon: Exclusive: Is this the woman who can persuade pension funds to invest for impact?

Wales targets 10% more social enterprises; West Midlands mayor urges business to buy social

A project in Wales is aiming to create 200 brand new social businesses over the next three years, providing quality jobs and essential services anchored in communities.

Social Business Wales, led by the Wales Co-operative Centre – the national body for social enterprises and co-operatives – is hosting a number of free events over the next fortnight to encourage aspiring entrepreneurs to start up a social business. The project is funded by the European Regional Development Fund.

The social business sector in Wales is worth an estimated £3.18bn, with at least 2,000 organisations in the sector, employing some 55,000 people.

Meanwhile, the mayor of the West Midlands, Andy Street – a former managing director of employee-owned John Lewis – has urged businesses in the region to help improve people’s lives by supporting local social enterprises. The social economy in the West Midlands is thought to be worth £3.5bn, and the West Midlands Combined Authority is aiming to double that figure over the next decade.

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