The Week: Fink’s greener future needs governments to play ball

Larry Fink this week committed BlackRock to a greener future. He should have words with the UK government. 


  • BlackRock’s Larry Fink says investors need to reassess core assumptions about modern finance
  • Climate risk is investment risk, impacting prices, costs, and demand across the entire economy
  • The UK government’s bailout of Flybe threatens the green agenda

When Larry Fink speaks, people usually take notice. With $7 trillion under management, if he says that climate change is a defining factor in companies’ long-term prospects, then it is. If he says it should compel investors to reassess core assumptions about modern finance, then it probably should. 

In his annual letter to CEOs, Fink makes it clear that ‘sustainability’ is not just about tracking carbon emissions and installing a roof garden, the whole fabric of modern capitalism needs to be rethought: “What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”

For him, climate risk is investment risk: climate policy will impact prices, costs, and demand across the entire economy. The investment risks presented by climate change will prompt a significant reallocation of capital, which will impact the pricing of risk and assets. 

In theory, this augers a brave new world, where ‘dirty’ companies are starved of capital and simply wither and die, to be replaced with their eco-friendly equivalent. In this way, the asset management industry brings about the green revolution that climate change protestors and governments have struggled to create.  

However, there is a serious question over what happens to the companies that cannot fit this new model. This was seen this week with the difficulties experienced by Flybe, whose main business is domestic UK flights. The government stepped in to provide support for the troubled airline, prompting an outcry from environmental campaigners and rival airline owners alike. Protestors argue that taxpayer support for a polluting business when there is no commensurate support for its cleaner greener equivalent, the train, is capricious. 

It shows that there is a risk that governments, mindful of the social cost of failure, step in to support these distressed businesses. If that happens, do hedge funds start to anticipate state aid and back the assets? The asset-manager led green revolution might be on shakier ground. 

That the CEO of the largest money manager in the world recognises the problem is a major step in bringing about change. However, governments will also need to be brave in cutting companies loose. The investment management industry may be at the heart of this change, but it cannot do it alone.