Blackrock's Fink heralds finance revolution - but is it enough?

Have you ever heard of the Happy Meal paradox? Let me explain.

Being a great father, I sometimes take my daughters for a nutritious meal at a little eatery I know called McDonald’s. They pester, they win and they enter in a state of great excitement that they are about to receive a Happy Meal, which includes a toy.

However, when the meal arrives, the excitement turns to complaints that the toy isn’t the exact one they wanted.

This always strikes me as bizarre. They’ve got a toy that they didn’t have until a few seconds ago, but they’re now upset that it isn’t good enough. In the words of my seven-year-old, ‘plastic pollution’. This means a so-called ‘Happy Meal’ is almost guaranteed to make them unhappy.

This shows how people can be disappointed even when they’ve been given, for free, something they wanted. I see a similar paradox in the office when I bring in substandard cake. But what’s the reason for these food-based anecdotes?

Last Wednesday, BlackRock’s chief executive Larry Fink sent an open letter to chief executives, which warned that climate change was set to fundamentally reshape the finance industry. In response, he said the $6.5trn asset manager was set to put climate change at the heart of its investment strategy.

The letter was unequivocal: “Every government, company, and shareholder must confront climate change,” Fink wrote.

He said BlackRock would exit firms that were high sustainability risks, including coal producers, and would work with France, Germany and others to set up new mechanisms for green infrastructure investment. These are just two of a series of measures that we believe should be welcomed.

And yet, the reaction from environmental protestors has been muted.

“It’s not always the case that something is better than nothing, particularly if it’s used to distract from the truth. And the truth is that the world’s biggest miners and polluters will not be losing any sleep over this,” said a statement from Extinction Rebellion.

Others were more positive. Jeanne Martin, campaign manager at ShareAction, said the group welcomed the commitment to improving transparency, but Fink had left a large number of questions unanswered; and Charlie Kronick, climate finance campaigner for Greenpeace, warned other financiers to step up too “if they want to avoid becoming the target of unprecedented pressure”.

These groups are right to say that BlackRock needs to follow up Fink’s letter with actions. That will be the real test of this strategy.

And they're right to say that BlackRock still funds plenty of businesses in the fossil fuels sector, alongside its huge investments in wind and solar.

But there’s something of the ‘Happy Meal paradox’ about this too.

Activists have been calling on BlackRock and other financial giants to commit to a huge overhaul of the global financial system to put climate action at its heart. Fink has committed BlackRock to do just that. Let’s take a moment to mark this victory. Even if you think it's a small victory, it's still a victory.

The letter also shows that the current climate crisis pressure is paying off.

Fink wrote that “climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios”.

And the fact is that Fink’s intervention will reach many investors that climate protests would not, who may have been unconvinced about the need to act, or would question the wisdom about making changes in their own portfolios. Fink is highlighting questions about the climate and finance that need to be asked.

These are all good moves that build on BlackRock’s strength in renewables. It has identified as a $9trn climate infrastructure investment opportunity over the next 30 years, and is planning to invest $2bn-$3bn in renewables assets in 2020 and 2021. It currently manages $5bn of renewables assets globally.

It is far from perfect when it comes to the climate. But, in terms of the asset managers ploughing money into climate solutions, it’s doing more than most.

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