Sustainability a key consideration for investors in 2020
Black Rock is easily one of the world's largest asset managers and this week, for the second year in a row, CEO Larry Fink sent a clear message to the market in his annual letter. The message: – act on sustainability and climate change mitigation or risk business growth and prosperity.
Black Rock claims climate change will drive a transformative and inevitable reallocation of capital towards sustainable investments. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance” Larry Fink writes.
For years, prudent investors have been considering non-financial metrics such as Environmental, Social, and Governance (ESG) risks in their investment strategies. However, there is increasing pressure from a wider range of investors for businesses to disclose their performance and the actions they are taking to ensure the long-term sustainability of their business in the face of a changing climate.
There is no question today – climate risk IS an investment risk, and if an organisation does not know what these risks are or have a plan to mitigate their exposure then the attractiveness of that investment is significantly diminished. Climate Change is increasingly the top risk identified by Australians, with 72% naming it their #1 personal concern in 2019.
Black Rock advised their CEOs that there will be an unavoidable and significant reallocation of capital with increased investor awareness of and sensitivity to climate risk. “They are seeking to understand both the physical risks associated with climate change, as well as the ways that climate policy will impact prices, costs, and demand across the entire economy.”
“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital,” Black Rock predicts.
The overwhelming message is that the future of profit is purpose and Larry Fink’s 3rd Annual letter makes an undeniable case for change that will redefine our markets. Shrewd and responsible organisations will recognise these changing sentiments as opportunities and reshape the way they do business through transparency and accountability, those that don’t risk failure in the long-term.
In the end, embracing sustainability as a key component of your business actually reduces risk by identifying risky short-term gain activities (exploiting natural resources, hiking prices, modern slavery etc) and adjusting their benefits on the timescale of long-term business prosperity and success.
The Glacier Group specialise in ESG and sustainability advisory services for Australian businesses.
To find out how we can help you on this journey, please get in touch! We look forward to speaking.