The founder, CEO, and Chairman of BlackRock, Larry Fink has long been a champion of ESG business practices, transparency, and climate-related disclosures. Since 2016, Fink has expressed in his influential Letter To CEOs that, “over the long-term, environmental, social and governance (ESG) issues — ranging from climate change to diversity to board effectiveness — have real and quantifiable financial impacts.”
Larry Fink has doubled down on ESG policies since and shown that he expects the companies BlackRock invests in to do the same. This is also true for the wider investment management sector as they now recognize the importance of including climate-related physical and transitional risks in their financial risk assessments.
Even in the face of criticism from those who believe BlackRock’s focus on ESG is politically motivated, Fink and BlackRock have been steadfast in their commitment to ESG and climate disclosure. Fink claimed in his most recent Letter To CEOs that stakeholder capitalism is not political but good business, stating, “capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”
As the world’s largest investment management firm, with over $10 trillion in assets under management BlackRock has substantial sway in the market. BlackRock’s leadership on climate issues has led them to become an industry leader in climate disclosure requests, but why are they leading the charge?
Why Climate Disclosures Are Important for Investors
As the effects of a changing climate become ever more apparent, regular and accurate climate reporting is important to accurately assess the financial risks that businesses face. For investors like BlackRock, failure to perform due diligence on assessing the physical and transitional climate risks of its portfolio companies could result in flawed investments, stranded assets, and risky bets; akin to conducting due diligence on a company’s financials or ethical business practices.
Recent proposals for mandated disclosures of climate-related information from the US Securities and Exchange Commission have meant that publicly traded investment management companies will have to report their climate information with their financial information. Similar climate disclosure mandates are set to become a reality in other jurisdictions around the world, such as in the EU and California, which may include requirements for companies in the private markets to disclose their emissions, furthering the importance of climate disclosures for investors.
What To Do When You Receive A Climate Disclosure Request From BlackRock
Investors across the board, including BlackRock, have very similar requests for climate information as they are mostly aligned with the primary climate disclosure frameworks, e.g., the Taskforce for Climate-Related Financial Disclosure (TCFD), The Greenhouse Gas Protocol (GHGP), and CDP.
If there is already a system in place for measuring climate information in line with these frameworks, conducting a ‘gap analysis’ may be the best place to start. This will help companies understand where within their organizational boundaries lacks sufficient greenhouse gas measurements and what parts of their strategy and governance need updating in order to meet the requests from investors. However, if a company has never conducted an audit of its climate information, there are step-by-step guides to conducting a comprehensive carbon audit in line with BlackRock’s and other investors' requests.
Industry organizations such as Forrester and the Center for Climate and Energy Solutions have also produced guides and best practices to assist enterprises and first-time reporters with the demands of accurate disclosure to investors through CDP. One of the critical aspects of your climate disclosure journey, and to ensure your climate disclosure is accurate, is automating the process, according to Forrester.
The Importance of Carbon Accounting Software for Investor Climate Requests
A recent study conducted by ERM on the cost of carbon disclosure found that institutional investors required $1,372,000 annually to acquire and analyze climate data to inform their investment decisions; for corporations, the average cost was $533,000 annually for climate-related disclosure activities. Carbon accounting software can reduce the costs of climate disclosure substantially, providing access to smaller companies that may not have the resources to perform regular carbon accounting.
Carbon accounting software, like Persefoni’s Climate Management and Accounting Platform (CMAP), enables companies and investors to automate the climate disclosure process and ensure that carbon accounting is rigorous and accurate. Carbon accounting software also has the ability to perform climate impact benchmarking, which can assess the climate performance of peers in your sector or geography and assess the climate performance of prospective and current investments against others. To find out how carbon accounting software can help you automate your climate disclosures and evaluate the performance of your peers and investments, schedule a demo here.
The convergence of these market-shaping forces, such as the world’s largest asset manager continuing to lead the charge on climate disclosure requests, the SEC’s proposal for mandated climate disclosures, other global climate disclosure mandates, and the maturation of carbon accounting software, will ensure that companies accurately and regularly assess and report on their climate information. Providing investors and other stakeholders with the right data allows them to make better-informed decisions on the likely climate risks and opportunities entities face.
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