BlackRock CEO says mandatory climate-related financial disclosure is key for driving renewable investment
As the ongoing global energy transition continues to have record-breaking years despite significant obstacles like government obstruction, tariffs, and the pandemic, it can be easy for investors and renewable energy clients to celebrate progress through their IRPs and setting of renewable energy targets. But BlackRock's CEO Larry Fink has a wakeup call for the industry: we aren’t on track to achieve our goals. And unless things change in some key areas that are often overlooked, Fink is concerned that the global transition will not happen fast enough.
During the keynote interview of the Sustainability Week web conference being hosted by The Economist, Fink said that the key to fully transitioning the global power infrastructure and eliminating our carbon emissions is through widespread investment. But the keys to driving that investment according to Fink may not be what you expect. To Fink, the issue at hand isn’t so much convincing investors to enter the space, it’s enforcing reporting standards for climate-related financial disclosures for all companies, public and private.
“We need the world to come together and implement measurement tools where we are all measured the same way on sustainability and net zero, but right now that isn’t the case” Fink said. “In the U.S., the Department of Labor has basically stated that you cannot invest your money as a fiduciary for any social cause. The only measurement you have in the U.S. is the maximization of profits. That’s why I wrote last year that we believe climate risk is investment risk, and it’s also why data and reporting standards are so important. Once we have that, we will be able to move far more rapidly.”
According to Fink, for this approach to work it must be mandatory across the board for companies regardless of their nationality, a requirement he is prepared to push for at COP26, the UN Climate Change Conference currently scheduled to be held in person this November in Glasgow. Fink’s plan is to require all companies to report under TCFD, the Task Force on Climate-related Disclosures.
“I don’t believe that’s a difficult leap for any company to do,” Fink said flatly.
Additionally, Fink says it is critical for all companies, not just public ones, to be held to this standard for the market to really move forward. Otherwise, he says, too many will simply go private or sell their “dirty assets” to private firms thus blunting the desired outcome of reducing overall emissions and accelerating investment in renewables.
“If we really believe in a net zero world, we have to approach this holistically across society, not just with public companies,” Fink said. “Otherwise, we’re going to have significant arbitrage of public companies going private or selling assets that are dirty into private hands. There are already public companies discussing this because they’re under so much pressure. At that point, we’re not changing the carbon footprint of the world at all. It’s really an issue of whether our governments really want to reach the objective of a carbon free world.”
Fink says that maximizing, incentivizing, and even requiring investment into renewable energy, and specifically renewable technologies, is going to be key in driving down the “green premium” and allowing all nations and companies, not just those with a sustainability focus, to participate in the market.
“We need to invest billions, even trillions of dollars into new technologies to bring down the green premium,” Fink said. “When we can do that, we will have more participation.”
In that sense, Fink argues the private sector, particularly among renewable capital companies, have actually moved faster than most other segments of society, despite objections to the contrary. The issue at hand according to Fink is a lack of supply rather than a lack of capital. But in order to drive up supply and make renewable development widespread to the level that will be required to transition in time to reach the goals of the Paris Climate Accord, the cost to do so must come down further and without the need for government aid.
“Look at the P/Es of a traditional hydrocarbon company vs. the P/Es of the renewable energy companies,” Fink said. “The difference there tells me there is a huge amount of capital willing to invest in sustainability, more capital than there is supply. That encourages me; the demand is there for more investment. But it also tells me that the investment community has moved faster than many other segments of society. The capital is there; the issue is finding the right investments.”