This week, BlackRock—the world’s largest money manager—announced that it will begin adjusting its investment strategies with climate change in mind. Rotman professor Sarah Kaplan joined CBC’s Front Burner to discuss how this move will impact the company’s bottom line.
In his letter to CEOs, BlackRock’s Larry Fink wrote that “we are on the edge of a fundamental reshaping of finance.” Citing research from the UN, McKinsey, and the company’s own investment institute, Finks makes a compelling argument that climate risk is investment risk, and thus, cannot be ignored. While BlackRock won’t immediately pull out of natural resource companies such as Suncor or ExxonMobil, it will begin transitioning its portfolios to other companies—a move that Rotman professor Sarah Kaplan says will have huge implications. “If 7 trillion dollars is not going to be accessible to [natural resource companies], then the cost of capital for them is going to go up. It’s going to make their operations more expensive,” she explains. “Which, by the way, is a way that the marketplace is actually sanctioning these behaviors—because if their cost of capital goes up, then it means that taking fossil fuels out of the ground is going to be more expensive than wind energy or other renewables. […] It's a way of getting the market to invest in renewables, in a way.”
Whether it be from consumers, employees, or investors, companies today are facing intense pressure from a variety of stakeholders, with the environment emerging as a key concern. In her book The 360 Corporation Kaplan explores what organizations can do to respond to these concerns—without “greenwashing”—and continue to deliver shareholder value.
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