BlackRock CEO Larry Fink Says Climate Change Means Capital Markets Will Shift 'Sooner Than Most Anticipate'

BlackRock, Inc. BLK CEO Larry Fink has joined environmental doomsdayers in predicting the effects of climate change on Wall Street.

“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote Tuesday in an annual letter to CEOs. “But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

Fink expects changes to the municipal bond market, with areas more exposed to climate change being less able to finance debt, according to CNBC

The operations of entire countries and companies will change as sustainability requirements take shape, Fink said. He also expects changes in market allocations.

“Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” Fink wrote.

“From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios.”

Spikes in natural disasters, global temperatures and protests against fossil fuels have increased the concerns. BlackRock, the largest money manager in the world, is bracing for large capital shifts “sooner than most anticipate,” its CEO said. 

“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself,” Fink said.

He suspects these changes will be different than past market shocks: neither the dot-com bubble nor the 2008 financial crisis nor the inflation rates of the 1970s will prove as disruptive as climate change.

The problem has unmatched permanence and no Federal Reserve to help restabilize the economy, he said. 

“Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different,” Fink said. “Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”

BlackRock plans to reshape its portfolio construction and risk management around environmental sustainability; exit investments with high climate exposure and sustainability risk; launch products to screen out companies exposed to fossil fuels; and vote against boards that fail to disclose sustainability goals and efforts.

BlackRock shares were down 0.92% at $518.28 at the time of publication Tuesday. 

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