Why electric cars will take over sooner than you think

Originally published 6.1.21

I know, you probably haven’t even driven one yet, let alone seriously contemplated buying one, so the prediction may sound a bit bold, but bear with me.

We are in the middle of the biggest revolution in motoring since Henry Ford’s first production line started turning back in 1913.

And it is likely to happen much more quickly than you imagine.

Many industry observers believe we have already passed the tipping point where sales of electric vehicles (EVs) will very rapidly overwhelm petrol and diesel cars.

It is certainly what the world’s big car makers think.

Jaguar plans to sell only electric cars from 2025, Volvo from 2030 and last week the British sportscar company Lotus said it would follow suit, selling only electric models from 2028.

And it isn’t just premium brands.

General Motors says it will make only electric vehicles by 2035, Ford says all vehicles sold in Europe will be electric by 2030 and VW says 70% of its sales will be electric by 2030.

This isn’t a fad, this isn’t greenwashing.

Yes, the fact many governments around the world are setting targets to ban the sale of petrol and diesel vehicles gives impetus to the process.

But what makes the end of the internal combustion engine inevitable is a technological revolution. And technological revolutions tend to happen very quickly.

This revolution will be electric

Look at the internet.

By my reckoning, the EV market is about where the internet was around the late 1990s or early 2000s.

Back then, there was a big buzz about this new thing with computers talking to each other.

Jeff Bezos had set up Amazon, and Google was beginning to take over from the likes of Altavista, Ask Jeeves and Yahoo. Some of the companies involved had racked up eye-popping valuations.

For those who hadn’t yet logged on it all seemed exciting and interesting but irrelevant – how useful could communicating by computer be? After all, we’ve got phones!

But the internet, like all successful new technologies, did not follow a linear path to world domination. It didn’t gradually evolve, giving us all time to plan ahead.

Its growth was explosive and disruptive, crushing existing businesses and changing the way we do almost everything. And it followed a familiar pattern, known to technologists as an S-curve.

Riding the internet S-curve

It’s actually an elongated S.

The idea is that innovations start slowly, of interest only to the very nerdiest of nerds. EVs are on the shallow sloping bottom end of the S here.

For the internet, the graph begins at 22:30 on 29 October 1969. That’s when a computer at the University of California in LA made contact with another in Stanford University a few hundred miles away.

The researchers typed an L, then an O, then a G. The system crashed before they could complete the word “login”.

Like I said, nerds only.

S-curve

A decade later there were still only a few hundred computers on the network but the pace of change was accelerating.

In the 1990s the more tech-savvy started buying personal computers.

As the market grew, prices fell rapidly and performance improved in leaps and bounds – encouraging more and more people to log on to the internet.

The S is beginning to sweep upwards here, growth is becoming exponential. By 1995 there were some 16 million people online. By 2001, there were 513 million people.

Now there are more than three billion. What happens next is our S begins to slope back towards the horizontal.

The rate of growth slows as virtually everybody who wants to be is now online.

Jeremy Clarkson’s disdain

We saw the same pattern of a slow start, exponential growth and then a slowdown to a mature market with smartphones, photography, even antibiotics.

The internal combustion engine at the turn of the last century followed the same trajectory.

So did steam engines and printing presses. And electric vehicles will do the same.

In fact they have a more venerable lineage than the internet.

The first crude electric car was developed by the Scottish inventor Robert Anderson in the 1830s.

But it is only in the last few years that the technology has been available at the kind of prices that make it competitive.

The former Top Gear presenter and used car dealer Quentin Willson should know. He’s been driving electric vehicles for well over a decade.

He test-drove General Motors’ now infamous EV1 20 years ago. It cost a billion dollars to develop but was considered a dud by GM, which crushed all but a handful of the 1,000 or so vehicles it produced.

The EV1’s range was dreadful – about 50 miles for a normal driver – but Mr Willson was won over. “I remember thinking this is the future,” he told me.

He says he will never forget the disdain that radiated from fellow Top Gear presenter Jeremy Clarkson when he showed him his first electric car, a Citroen C-Zero, a decade later.

“It was just completely: ‘You have done the most unspeakable thing and you have disgraced us all. Leave!’,” he says. Though he now concedes that you couldn’t have the heater on in the car because it decimated the range.

How things have changed. Mr Willson says he has no range anxiety with his latest electric car, a Tesla Model 3.

He says it will do almost 300 miles on a single charge and accelerates from 0-60 in 3.1 seconds.

“It is supremely comfortable, it’s airy, it’s bright. It’s just a complete joy. And I would unequivocally say to you now that I would never ever go back.”

We’ve seen massive improvements in the motors that drive electric vehicles, the computers that control them, charging systems and car design.

But the sea-change in performance Mr Willson has experienced is largely possible because of the improvements in the non-beating heart of the vehicles, the battery.

The most striking change is in prices.

Just a decade ago, it cost $1,000 per kilowatt hour of battery power, says Madeline Tyson, of the US-based clean energy research group, RMI. Now it is nudging $100 (£71).

That is reckoned to be the point at which they start to become cheaper to buy than equivalent internal combustion vehicles.

But, says Ms Tyson, when you factor in the cost of fuel and servicing – EVs need much less of that – many EVs are already cheaper than the petrol or diesel alternative.

At the same time energy density – how much power you can pack into each battery – continues to rise.

They are lasting longer too.

Last year the world’s first battery capable of powering a car for a million miles was unveiled by the Chinese battery maker, CATL.

Companies that run big fleets of cars like Uber and Lyft are leading the switchover, because the savings are greatest for cars with high mileage.

But, says Ms Tyson, as prices continue to tumble, retail customers will follow soon.

How fast will it happen?

The answer is very fast.

Like the internet in the 90s, the electric car market is already growing exponentially.

Global sales of electric cars raced forward in 2020, rising by 43% to a total of 3.2m, despite overall car sales slumping by a fifth during the coronavirus pandemic.

Electric car sales

That is just 5% of total car sales, but it shows we’re already entering the steep part of the S.

By 2025 20% of all new cars sold globally will be electric, according to the latest forecast by the investment bank UBS.

That will leap to 40% by 2030, and by 2040 virtually every new car sold globally will be electric, says UBS.

The reason is thanks to another curve – what manufacturers call the “learning curve”.

The more we make something, the better we get at making it and the cheaper it gets to make. That’s why PCs, kitchen appliances and – yes – petrol and diesel cars, became so affordable.

The same thing is what has been driving down the price of batteries, and hence electric cars.

We’re on the verge of a tipping point, says Ramez Naam, the co-chair for energy and environment at the Singularity University in California.

He believes as soon as electric vehicles become cost-competitive with fossil fuel vehicles, the game will be up.

That’s certainly what Tesla’s self-styled techno-king, Elon Musk, believes.

Last month he was telling investors that the Model 3 has become the best-selling premium sedan in the world, and predicting that the newer, cheaper Model Y would become the best-selling car of any kind.

“We’ve seen a real shift in customer perception of electric vehicles, and our demand is the best we’ve ever seen,” Mr Musk told the meeting.

There is work to be done before electric vehicles drive their petrol and diesel rivals off the road.

Most importantly, everyone needs to be able charge their cars easily and cheaply whether or not they have a driveway at their home.

That will take work and investment, but will happen, just as a vast network of petrol stations rapidly sprang up to fuel cars a century ago.

And, if you are still sceptical, I suggest you try an electric car out for yourself.

Most of the big car manufacturers now have a range of models on offer. So take one for a test drive and see if, like Quentin Willson, you find you want to be part of motoring’s future.

Electric Vehicles Are the Future of Last-mile Delivery

Originally published 5.27.21

The rise of ecommerce has catapulted electric vehicles to prominence. Concern about greenhouse gas emissions is driving the move away from diesel delivery vehicles towards trucks and vans using alternative power sources. Electric vehicles with a range of up to 150 miles are ideally suited to “last mile” deliveries, those with a limited radius.

The State of Washington has enacted ground-breaking legislation that sets a target for all model year 2030-or-later passenger and light-duty vehicles sold there to be electric. The new law is the most aggressive in the U.S. for moving to an all-electric future and puts Washington five years ahead of California’s 2035 mark. Fifteen other states, plus Washington, D.C., require all new trucks, vans, and buses to be electric by 2050.

EV Manufacturers

Auto manufacturers are competing with start-ups to produce the most efficient and “smart” electric delivery vehicles. Volvo, Freightliner, Tesla, and China’s BYD are among the companies producing heavy-duty semi-trucks for regional shipments. Volvo’s VNR design, engineered in Virginia, will have a range of 150 miles before needing a recharge of one hour.

Ford and GM are competing to launch smaller electric vans for last-mile delivery. Ford will roll out an all-electric version of its Transit van in 2022, and GM’s BV1 is slated for production later this year.

GM has launched a subsidiary, BrightDrop, to focus on last-mile products — vehicles, e-pallets, software. GM Chairman and CEO Mary Barra stated, “We are building on our significant expertise in electrification, mobility applications, telematics, and fleet management, with a new one-stop-shop solution for commercial customers to move goods in a better, more sustainable way.”

BrightDrop has reportedly received interest from multiple shipping and delivery services, with a firm commitment from FedEx.

A UPS subsidiary, UPS Ventures, is investing in Arrival, a U.K.-based manufacturer of EVs with advanced driver-assistance systems. UPS is buying 10,000 units from Arrival over the next four years for its North American and European fleets.

Rivian Automotive is a California-based start-up with direct backing from Amazon.

Amazon

According to Morgan Stanley analyst Adam Jonas, Amazon could become the world’s single biggest producer of CO2 emissions after China’s coal plants. However, Amazon claims it delivered in 2020 more than 20 million packages in electric vehicles across North America and Europe.

The company plans to deploy 100,000 additional EVs by 2030, sourced from Rivian. It has started to road-test them in Los Angeles and San Francisco and aims to be in 16 U.S. cities by the end of 2021.

Amazon is working with Rivian to test the vehicle’s performance, safety, and durability in various climates and geographies. The current fleet of vehicles being tested was built at Rivian’s facility in Plymouth, Michigan, and can drive up to 150 miles on a single charge.

Low-Cost Batteries Are About To Transform Multiple Industries

Originally published 12.3.19

Lithium-ion battery prices have seen a dramatic decline in manufacturing costs over the past decade. The below chart from a Bloomberg New Energy Finance report released today shows the steady march downward in prices.

Battery pack prices have fallen from $1,183/kWh in 2010 to $156/kWh in 2019

Lithium ion battery prices have fallen nearly 90% over the past decade, according to BloombergNEF’s 2019 Battery Price SurveyBNEF

In fact, the chart may be understating things a bit. BNEF forecasts that the industry will see $100/kWh by 2023. However, one industry insider told me recently that he’s already seeing costs near that point. If so, that price level may prove to be an inflection point for several major industries.

The obvious first such industry is transportation. In a McKinsey & Co. report from March of this year, the researchers suggested that a $100/kWh cost for battery packs (along with some other cost-reduction areas) would lead to electric vehicle manufacturing cost parity versus comparable internal combustion engine (ICE) vehicles. McKinsey & Co. projected that this would happen in a 2025 timeframe, but battery cost reductions may be accelerating that greatly.

Incredibly, even while experts are saying sales of ICE vehicles may have permanently peaked last year, not all automotive OEMs are moving quickly toward the EV future. While some like GM and Volvo have said they will migrate their entire vehicle lineup toward EVs, others have been slower to do so. The rapid decline in battery prices, if it leads to faster-than-expected adoption of EVs, could mean that the next decade sees a lot of value creation and destruction in the automotive industry.

But it could also mean the same for the electric utility industry, as cheap energy storage could radically change the value proposition for grid-tied consumers thinking about installing solar and batteries.

When Superstorm Sandy hit the Atlantic coast, many manufacturers and other businessowners faced a stark recognition that power from the grid wasn’t always going to be available to run their operations. Now, in 2019, many businessowners in California are learning the same lesson, with the rolling blackouts by PG&E that left millions without power.

The obvious solution for many would be “microgrids”: Onsite distributed generation (typically solar) matched with sufficient battery capacity to together provide 48 or more hours of resiliency in the case of a grid blackout. But while solar prices continued to fall, prompting a continued high rate of solar installations in the U.S., the high cost of such battery capacity has held back the implementation of microgrids.

How does this impact the electric utility industry? It’s important to remember that utilities generate revenue not only by selling kilowatt-hours, but also by making large customers pay a “demand charge” based upon their single biggest 15-minute spike in power usage in a month. While power generation from distributed solar projects has been on the rise, between continued sales of kilowatt-hours and demand charges, utility revenues have continued to grow. Indeed, imposing demand charges onto residential customers has been seen by the utility industry as one potential way to counter any loss of revenues from kilowatt-hour consumption.

But microgrids with cheap battery storage will completely upset this calculation. It will make it cost-effective for business owners (and even homeowners) to generate and consume their own power onsite without paying the utility for those kilowatt-hours. Plus, for those customers still purchasing power from the utility, the batteries will also be used to reduce those monthly spikes in consumption that create the demand charges. Since demand charges can be upwards of 30% of a business owner’s utility bill, when businesses use batteries to reduce their demand charges, that is also lost revenue to the utility.

So batteries could negatively impact both of the main drivers of electric utility revenue. They will enable customers to effectively become their own utility, with some potentially cutting the cord altogether. This won’t happen overnight. But cheap batteries now make it possible, and the resiliency benefits alone might drive widespread adoption over the next decade.

Utilities will have one potential counter-balance to this phenomenon — as much of the transportation industry shifts increasingly over to electric drivetrains, that will add more potential demand for kilowatt-hours (and also more demand charge revenues). Plus, utilities can also buy their way into the microgrid business itself. But some utilities appear to be embracing this future much faster than others. As with the transportation industry, this will mean a period of potentially significant disruption within the utility industry, with winners and losers yet to be determined.

Finally, all of this will clearly impact the global energy industry, which supplies both the transportation and utility industries. EVs don’t consume gasoline, and microgrids typically won’t consume natural gas (a primary power generation source for utilities).

As the transportation sector shifts more to electricity, some oil and gas giants are investing heavily into building new lines of businesses serving the distributed electricity future. They are getting into the microgrid and EV business, in other words. Others prefer to spend their money on TV ads talking about how “green” they are, and doing some showcase research and development, while still remaining entirely focused on traditional oil and gas based strategies for the foreseeable future.

Once again, this dichotomy feels like we are entering a period when there will be potentially significant disruption to a major global industry where participants are choosing very different paths.

These are huge industries — transportation, electric utilities, and their upstream energy providers — that will be impacted by the proliferation of inexpensive batteries. That’s why today’s report by Bloomberg NEF is so note-worthy. As an investor, I’m certainly looking for ways to take advantage of the coming period of “creative destruction”.

Michelin Is Out to Make the World’s Greenest Tire

Originally published 6.5.21

To extend EV range, engineers are looking where the rubber hits the road.

Making tires for an electric vehicle is a ruthless exercise in compromise. Too much stick and the car won’t travel as far on a charge; too little, it will silently slide off the road. Exacerbating the equation is the fact that these vehicles are ponderously heavy.

Michelin, however, says it has finally perfected the mix after 30 years of tinkering with its rubber recipes. If EV ranges tick slightly higher in the next few months, the battery chemists won’t deserve all the praise; save some for the tire wizards.

Next: they want to make that same tire a data engine and, while they’re at it, fully recyclable.

Hyperdrive caught up with Alexis Garcin, chairman and president of Michelin North America, to talk about the company’s R&D blitz and how he’s preparing for a massive wave of electric vehicles.

It has more or less the same complexity as making a tire for a combustion car, but it brings it to another level. You have to ensure safety but you have to minimize resistance, because it has a direct link with the fuel consumption. And the high tech materials used have to be lighter and lighter, because if the car is getting heavier, we have to make sure that the tire won’t. That’s really a subtle mix.

So these tires are purpose-built for EVs?  

In March, we unveiled the e.PRIMACY, which will come later this year for larger SUVs in the U.S. That tire is bringing up to 7% additional range to electric vehicles, because it is optimized to reduce the road resistance without compromising any of the performance. That’s a technology we mastered and we’re just rolling it out.

The second example is on the Pilot Sport, which we just released. It’s a dedicated tire for electric sports cars and it brings up to 37 miles of additional range, because of that optimization of running resistance.

What does R&D look like now?

We have massively re-accelerated our investments in what we call the high-tech material division. Those open us up to new domains, like aerospace, like medical and other industries. Our vision is to have a fully renewable and recyclable tire by 2050. Today, more or less, 30% of the tire is renewable and recyclable.

Is the size of vehicles today a challenge?

We have to adapt constantly our production system to that. Ten years ago, I would say we were massively producing 16- to 17-, maybe 18-inch products; today we are definitely in the 20, 22-inch range and already increasing production on 24-inch tires.

Has EV adoption changed your sales and distribution strategy? 

I think personally what’s happening right now is a deep transformation of the auto industry and it pushes the car manufacturers to think about a new business model. The value stream will probably move from buying a car and getting maintenance to some services that you buy every month or some packages you can integrate every 6 months, depending on new features and technologies that are being developed. We were the first manufacturer, starting in 2012, to put an RFID chip in every medium- and heavy-duty truck tire. By 2023, every passenger car tire will be equipped with an RFID chip because we believe they are a nice business model. There are so many offers we can build around tires, because at the end of the day that’s the only part of the car touching the road.

Can you give me some examples?

I see the RFID as an enabler. It’s not there to store information; it’s just like your social security number. Once it’s in the cloud, every time that tire shows up for maintenance, you can track that mileage and then you can push some information to the driver: ‘By the way, it might be time for you to make a rotation,’ or ‘you should be very close to the minimum tread depth and you might think about changing your tires.’ This is the kind of information that we can very easily share and deploy today. It’s even more valuable for the B2B customers. When you have a 10,000-vehicle fleet, this is a gold mine, because it’s such a high source of efficiency.

Are you talking to automakers earlier in the process?

I would say so. They need a strong partner to cope with the challenges they face when they are designing the vehicle — the range and the weight and the noise and everything we just talked about. And each one of them might have a different approach in terms of their after-market strategies. The after-market —  [warranties, long-term service, extra parts ]— will be completely revamped in the next five or 10 years.

When you have these conversations, with say, Tesla or Rivian, how customized do you get?

When we talk to [manufacturers], most of the time, the tires developed are made specifically to those cars. Because the cars are so unique, because of the interaction of the weight, the torque and the chassis of the vehicle, each one is different. Most of the tires are very, very tuned and made specific down to the model level. It’s much more complex than it appears.

MSCI Says Growth in ESG Outpaces Its Traditional Index Business

Originally published 2.23.2021

MSCI, one of the leading providers of indexes for the financial markets, is seeing demand for environmental, social and governance ratings and index products outstripping growth in its traditional index business, Baer Pettit, chief operating officer of MSCI (ticker: MSCI), said in an interview with Barron’s.

Approximately $200 million of the firm’s revenues are now “tied to ESG and climate,” and are growing “in the 30 percentages in this area,” Pettit said. “It’s growing dramatically, faster than even the second major closest category, the index business.” The latter is growing “in the low teens.” MSCI had $1 billion in revenue in 2020, up 10.4% from a year earlier.

MSCI is one of the most prominent firms in ESG ratings and has ridden the growing interest in sustainable investing. Money has flooded into the category, with U.S.-domiciled sustainable investments totaled $17.1 trillion at the beginning of 2020, up 42% from two years earlier, according to trade group US SIF. That number represents about a third of U.S. assets under management.

Index providers generate revenue by creating and  licensing indexes to banks, fund companies, and other financial firms for the creation of investment products and internal use. MSCI also sells analytics services. Increasingly, more institutional investors are asking for “ESG-tilted benchmarks” over traditional, market-cap weighted indexes, Pettit said. In addition, executives in the C-suite of the firm’s clients are increasingly interested in sustainability.

According to a recent MSCI survey of 200 institutional investors across the globe, 73% plan to increase ESG investment by the end of 2021. Among the largest firms, or those managing more than $200 billion in assets, the pandemic was a critical driver of plans to boost ESG integration. For the same firms, climate change is a critical risk, with more than 50% saying they actively use climate data to manage risk. 

By comparison, smaller firms were more concerned about market volatility. “There’s a sense of precariousness for smaller funds with less staff and less infrastructure, a nervousness and fragility that’s very telling,” Pettit said. “Unless we have perpetually wonderful markets, it will be more challenging.”

The popularity of sustainable investments, especially with the new Biden-Harris Administration pursuing a green agenda, may produce a “brown rally” as the lockdown ends, airlines resume flying and renewed economic growth bolsters share prices of greenhouse-gas emitters, Pettit predicted. Still, he sees that as a short term phenomenon, given ongoing demand for green products and services.

Goldman Sachs pledges $10 billion to change the lives of ‘One Million Black Women’

Originally published 3.11.2021

Reducing earnings gap for Black women could increase U.S. GDP by as much as $450 billion, Goldman research shows

Goldman Sachs has pledged to invest $10 billion over the next decade in an initiative to improve the economic standing of Black women, which will focus on areas including access to capital, housing, healthcare and job creation.

The new initiative, called “One Million Black Women,” will address the “dual disproportionate gender and racial biases that Black women have faced for generations, which have only been exacerbated by the pandemic,” Goldman said in a statement on Wednesday.

The goal of the program is to affect the lives of at least one million Black women by 2030. Goldman GS, 0.25% will also set aside $100 million for philanthropic causes focused on Black women.

Some of America’s biggest companies, including technology giants like Alphabet’s GOOGL, -1.31% Google, Facebook FB, 0.01% and Apple AAPL, -2.26%, as well as consumer groups such as Walmart WMT, -0.73% and PepsiCo PEP, -0.31%, have pledged tens of billions of dollars to help tackle systemic racism in the aftermath of the police killing of George Floyd last year, which led to weeks of protests across the country.

Major Wall Street banks are behind some of the other biggest pledges. Bank of America BAC, 0.50% led the way in June last year, when it committed $1 billion to help local communities cope with the widened economic and racial inequality caused by the COVID-19 outbreak.

More recently, JPMorgan Chase & Co JPM, 0.34% said in October that it would commit $30 billion to address racial inequality over the next five years. The package includes providing $8 billion in new mortgages for Black and Latino borrowers, $14 billion in loans for affording housing projects, and $2 billion in small business loans.

Black women currently make 15% less than white women and 35% less than white men, Goldman said, citing its own research, called Black Womenomics. Reducing the earnings gap for Black women could create as many as 1.7 million new U.S. jobs, and increase the country’s annual gross domestic product by as much as $450 billion, the research found.

It echoes similar research from Citigroup C, 0.01%, published in September, which showed that $16 trillion could be added to U.S. GDP if racial gaps for Black Americans in wages, housing, education and investment had been closed 20 years ago. If these gaps are closed today, $5 trillion could be added to U.S. GDP over the next five years, Citigroup researchers noted.

“Black women are at the center of this investment strategy because we know that capital has the power to affect change, and we know that Black women have the power to transform communities,” said Margaret Anadu, global head of sustainability and impact for Goldman Sachs Asset Management.

“If we can make our economy work for Black women, we all benefit,” she added.

In addition to joining with several Black sororities, Goldman is working with Black women’s organizations such as Black Women’s Roundtable; The National Coalition on Black Civic Participation and The National Council of Negro Women.

Goldman’s initiative will be overseen by its Advisory Council of Black leaders, which includes Walgreens Boots Alliance WBA, -1.41% Chief Executive Rosalind Brewer, Lisa Jackson, vice president of environment, policy and social initiatives at Apple, and former U.S. secretary of state Condoleezza Rice.

Seven ESG Trends to Watch in 2021

Originally published 3.2021

HIGHLIGHTS

In response to demand and regulatory drivers, the quality and quantity of ESG data will continue improving. Meanwhile, in the U.S., the new Biden administration will reinvigorate ESG policies and climate urgency.

With this growing global urgency around climate, conversations about energy transition will become increasingly nuanced and the nature of transition conversations will shift from climate mitigation to climate resilience.

While threats to nature and biodiversity will take centerstage in ‘E’ discussions, social issues will gain traction with investors and in global policy discussions.

In 2020, the world learned a hard lesson: Despite our best-laid plans, we don’t know what is immediately around the corner. In 2021, that lesson reinforces our view that a long-term, sustainable approach centered around strong environmental, social and governance (ESG) principles is more important than ever.

Here are some of the seven ESG trends we expect will shape the sustainability agenda in the months — and years — ahead.

1. Data Improvement   2. Biden Administration Impacts   3. Threats to Nature and Biodiversity   4. Increasingly Nuanced Conversations   5. Shift to Climate Resilience   6. Investors and Social Issues   7. Global Traction of Social Issues


1. In response to demand and regulatory drivers, the quality and quantity of ESG data will continue improving.


As many countries and supervisory authorities in the financial system begin to require climate risk disclosures, we expect continued drive towards transparency around climate in the lead up to the United Nations Climate Change Conference, or COP26, taking place in Glasgow in November.

The world’s largest asset managers are taking a proactive stance on issues across the ESG spectrum, and that will continue to drive discussions around disclosure and data quality. In his annual letter released last week, BlackRock’s Larry Fink urged companies to disclose how they are preparing for a “net zero world” where net greenhouse gas emissions are eliminated by 2050.1 At State Street Global Advisors, the main stewardship priorities in 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity on company boards.2

Simultaneously, a number of international and regional policy and regulatory initiatives are driving in the same direction. The IFRS Foundation’s proposals around sustainability reporting represent an important international attempt to make progress on disclosure.The Network for Greening the Financial System is also coordinating best practice in the world of financial supervision of climate-related risks. The new sustainability disclosure requirements for market participants in the EU under the Sustainability Disclosures Regulation and the Taxonomy have created new impetus for better ESG information and data. The review of the EU’s Non-Financial Reporting Directive this year aims to provide companies with a streamlined framework to report on ESG matters. The UK also has announced that it will make TCFD reporting mandatory. 

Perhaps most importantly, companies are responding to the pressure. Earlier this month, Exxon Mobil was first US oil super major to disclose greenhouse gas emissions data related to customer use of its petroleum products. The company said it will provide Scope 3 emissions data reports annually.4

But data remains uneven, with a patchwork of reporting frameworks around the globe. About 90% of companies in the S&P 500® publish sustainability reports, but only 16% have any reference to ESG factors in their filings, creating a mismatch between what is disclosed in regulatory filings and what companies voluntarily publish.5

Standardization is lacking, and as a result, regulators across jurisdictions are facing pressure to address this gap. The private sector and companies like S&P Global can play an important role in facilitating international dialogue to align on better disclosure standards, which will lead to better ESG data. We are engaging to lend our expertise to these policy initiatives trying to find solutions.

Ultimately, agreement on standard definitions of ESG information will reduce reporting burden and will provide better and more meaningful ESG data to market participants to help them identify, compare and act upon ESG risks and opportunities.


2. The new Biden administration will reinvigorate ESG policies and climate urgency in the U.S.


The new administration in the U.S. brings a significant change in tone on addressing climate risk. On Day 1 in office, President Joe Biden took steps to rejoin the Paris agreement on climate change and pledged to set the U.S. on the path to net-zero greenhouse gas emissions by 2050 with an interim target of decarbonizing the U.S. power sector by 2035. Biden is expected to use his first 100 days to start the nation down that road and has committed to make climate policy, renewable energy and green infrastructure top priorities for the new administration.6

Furthering the U.S.’s position on climate risk, the Federal Reserve recently joined the Network for Greening the Financial System, a group of central banks and supervisory authorities from around the world that are collaborating to develop climate risk management tools for the financial sector.7

These moves come alongside stark evidence of the economic costs of climate change. According to S&P Global Trucost, almost 60% of the companies in the S&P 500 have at least one asset at high risk of physical climate change impacts. In 2020 the U.S. broke an unsettling record, experiencing 22 extreme weather and climate change-linked disasters that each cost in excess of $1 billion, according to figures recently published by the National Oceanic and Atmospheric Administration. Those events collectively caused at least $95 billion in damages, killed at least 262 people and injured scores more. Prior to 2020, the largest number of annual major disasters was 16.

Scientists project that as average global temperatures continue to rise due to human-caused greenhouse gas emissions the number and intensity of extreme weather events would rapidly increase.8 A 2020 report by S&P Global Ratings found that water scarcity will affect 38% of counties in 2050 under a high-stress climate scenario (RCP8.5), raising risks under this scenario for their municipal water utilities, public-owned power utilities, and local governments. Heat wave risk will continue to increase across all states and under all scenarios to midcentury with Florida particularly exposed.9


3. Threats to nature and biodiversity will take centerstage in ‘E’ discussions. 


According to an S&P Global Trucost analysis of 3,500 companies representing 85% global market cap, 65% of company business models align with the United Nations Sustainable Development Goals (SDGs), but less than one percent of business models align with SDGs 14 and 15, “life below water,” and “life on land.” We expect this to change in 2021 with businesses shifting focus on growing threats to nature and biodiversity. The World Economic Forum estimates that $44 trillion of economic value generation representing more than half of world GDP is moderately or highly dependent on nature.

The Taskforce on Nature-related Financial Disclosures (TNFD) calls nature loss “a planetary emergency.” Similar to the Taskforce on Climate-related Financial Disclosures (TCFD), the TNFD working group of financial institutions, private firms, governments, regulators and think tanks aims to create a framework for corporates and financial institutions to assess, manage and report on their dependencies and impacts on nature.10

That discussion will continue and gain momentum throughout 2021. ‘How to Save the Planet’ was a theme of last week’s Virtual World Economic Forum in Davos, with sessions focused on biodiversity and ocean health.11In May, the United Nations Conference of the Parties (COP 15) to the Convention on Biological Diversity (CBD) will convene to review a strategic plan for biodiversity and likely to make a final decision on the post-2020 global biodiversity framework.12


4. With this growing global urgency around climate, conversations about the energy transition will become increasingly nuanced.


I mentioned in my last letter that we saw an absolute explosion of net-zero commitments from companies and countries surrounding the 5th anniversary of the Paris Agreement. With these new pledges, the United Nations estimated that by early 2021 countries representing around 65% of global CO2 emissions and around 70% of the world’s economy will have committed to reaching net-zero emissions or carbon neutrality.13 This is especially relevant when considering that the S&P 500 is on a CO2 emissions trajectory that implies a more than 3°C temperature rise globally, according to S&P Global Trucost.

China, which represents nearly 30% of global CO2 emissions, committed to halt its rise in carbon emissions before 2030 and become carbon-neutral by 2060. That will be no simple feat. S&P Global Platts analysts say that for China to reach net zero, “an unprecedented shift in the energy mix would need to take place” as fossil fuels currently account for 85% of its energy consumption.14

These ambitious targets mean companies and investors will be having some difficult discussions around the energy transition in 2021. As Laurence Pessez, head of corporate social responsibility at one of France’s largest banks, BNP Paribas, put it: “It’s obvious that we will have to exit the relationship with at least 30% to 50% of our current clients in the power generation business.”15


5. The nature of transition conversations will shift from climate mitigation to climate resilience.


As the planet looks to “build back better” after the pandemic, we expect conversations to shift from simply mitigating the negative effects of climate change to include more discussion about adaptation and climate resilience.

Some groups are already working to address this, like the Coalition for Climate Resilient Investment. CCRI seeks to build on TCFD disclosures by finding practical ways to integrate physical climate risks into investment decision-making.16

Looking ahead, we also see that rebuilding from the pandemic presents opportunities for capital markets. In Europe, for example, 30% of the €750 billion recovery fund is dedicated to green and sustainable. With so much government-issued debt that will be tagged to sustainability, private markets are likely to crowd in, creating a boom in sustainable debt.17

After a record year for sustainability-related debt issuance, demand for sustainable and green bonds is set to “go through the roof” in 2021. According to S&P Global Ratings, global sustainable debt issuance is expected to surpass $700 billion in 2021, up from $500 million from 2020. With the increase in companies and governments making net-zero commitments, transition bonds are emerging as a potential solution by enabling carbon-intensive companies to raise capital and use the proceeds for activities that help them reduce their carbon footprint.


6. Investors will continue pressing companies on social issues, particularly around COVID-19, worker safety, and diversity.


Conversations about disclosure are not limited to the ‘E’ in ESG. On the contrary, when the pandemic hit it brought widespread social unrest around income inequality and worker safety. The death of George Floyd while in police custody put a necessary spotlight on the ugly systemic racism that for so long has gone unspoken in the U.S. Amid this upheaval the ESG conversation evolved rapidly as investors, corporates and the public gave more priority to social issues — the ‘S’ in ESG.

In 2021, we expect that focus will intensify, and data will evolve as a result.

Often when we talk about diversity, we talk about gender— a data point that is frequently easier to measure than other kinds of diversity. There is evidence that gender diversity improves results. S&P Global Market Intelligence’s Quantamental Research team looked at companies from year-end 2002 through May 31, 2019, and found that those with female CFOs generated $1.8 trillion more in gross profit than their sector average. Companies with female CFOs also experienced bigger stock price returns relative to firms with male CFOs during the executives’ first 24 months in the role, the analysis found.18

The definition of diversity is evolving beyond just gender as investors and corporates expand their expectations.

In December 2020, Nasdaq proposed a rule that that will require most of its more than 2,500 listed companies to have at least one director in the coming years who identifies as a woman and another who is Black, Hispanic, Native American, LGBTQ+ or part of another underrepresented community. Data on the race and sexual orientation of board members remains scarce, making it difficult to determine how many Nasdaq-listed companies currently comply with the diversity proposal. But an initial S&P Global Market Intelligence analysis of board gender diversity found that roughly 18% of the 2,707 companies listed at Nasdaq do not have a female director.19

Within S&P Global, we’re taking steps to correct enhance race-related data too. As a start we added a question regarding the number of board members from minorities to the 2021 S&P Global Corporate Sustainability Assessment.


7. Social issues will gain traction in global policy discussions, too.


We’re also seeing social issues coming to the fore in policy worldwide.

In Europe, after years of debate in politics and business about the best way to facilitate equal opportunities, German lawmakers backed a bill mandating female representation at the board level in the largest companies. It will make Germany one of the few countries in Europe with this kind of gender mandate.20

In the U.S., some states have gone a step further. Corporate diversity laws enacted in Illinois in 2019 and in California in September 2020 aim to make publicly traded companies embrace racial diversity on their boards, and in March for the first time the University of Illinois will publish a report card evaluating how public companies headquartered in the state are faring.

And at the federal level, Biden’s $1.9 trillion economic relief package includes proposals to bolster safety regulations for workers and expand the amount of paid sick, family and medical leave workers can receive. It comes at a time when many employees are struggling to care for children or loved ones amid widespread closures of daycares, schools and nursing homes.21

Family leave policies in the U.S. lag the rest of the developed world. The U.S. is the only country within the Organization for Economic Cooperation and Development that does not offer nationwide, statutory, paid family leave of any kind, whether maternity leave, paternity leave or parental leave, according to a 2019 UNICEF report on family-friendly policies. In addition, the federal government does not provide paid caregiving leave to its citizens nor mandates companies to do so.22

While a number of states have enacted paid family leave laws during the pandemic, the U.S. private sector has largely taken the lead in such policies in the absence of federal mandates, 2020 research conducted as part of S&P Global’s #changepays initiative found. Many parents and family caregivers saw their at-home commitments grow since the pandemic began, leading to increased stress and some feeling that they were being penalized at work for their increasing responsibilities, according to an S&P Global/AARP survey of nearly 1,600 people conducted in the late summer of 2020.23


Conclusion

We cannot know with certainty what is right around the corner, however, the events of this past year reinforced the importance of taking the long view — putting in place both policies and business strategies that look beyond next quarter or next year to create just, equitable and sustainable societies that will thrive over the next several decades and beyond. And that means understanding ESG risks and opportunities is a focus that we are invested in for the long haul.

Endnotes

  1. Larry Fink. CEO Letter. Blackrock. https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter. 26 Jan. 2021.
  2. Maricor Zapata. Racial inequity ‘a systemic risk’ – State Street Global Advisors CEO. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/racial-inequity-a-systemic-risk-state-street-global-advisors-ceo-62047105. 12 Jan. 2021
  3. IFRS. Sustainability Reporting- Work Plan. IFRS Foundation. https://www.ifrs.org/projects/work-plan/sustainability-reporting/. Sept. 2020.
  4. Amanda Luhavalja. Exxon discloses Scope 3 greenhouse gas emissions data for 1st time. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/exxon-discloses-scope-3-greenhouse-gas-emissions-data-for-1st-time-61981878. 5 Jan. 2021.
  5. David Winograd. Trucost CEO: Demand for sustainable debt set to ‘go through the roof’ in 2021. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/trucost-ceo-demand-for-sustainable-debt-set-to-go-through-the-roof-in-2021-62140976. 19 Jan. 2021
  6. Molly Christian and Esther Whieldon. Biden to use first 100 days to jump-start climate change agenda. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/biden-to-use-first-100-days-to-jump-start-climate-change-agenda-62101500. 19 Jan. 2021
  7. Abdullah Khan. Fed formally joins global group of regulators fighting climate change. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/fed-formally-joins-global-group-of-regulators-fighting-climate-change-61752645. 15 Dec. 2021.
  8. Esther Whieldon. US hit with record number of billion-dollar extreme weather disasters in 2020. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-hit-with-record-number-of-billion-dollar-extreme-weather-disasters-in-2020-62038969. 8 Jan. 2021.   
  9. Paul Munday. Better Data Can Highlight Climate Exposure: Focus On U.S. Public Finance. S&P Global Market Intelligence. https://www.spglobal.com/ratings/en/research/articles/200824-better-data-can-highlight-climate-exposure-focus-on-u-s-public-finance-11604689. 24 Aug. 2020. 
  10. TNFD. Who We Are. TNFD.info. https://tnfd.info/who-we-are/
  11. World Economic Forum. Davos 2021 Agenda. Weforum.org. https://www.weforum.org/events/the-davos-agenda-2021/programme
  12. United Nations. Events. UN.org. https://www.un.org/en/food-systems-summit/events
  13. Maxime Pontoire. The race to zero emissions, and why the world depends on it. United Nations. https://news.un.org/en/story/2020/12/1078612. 2 Dec. 2020.
  14. Martina Cheung. Building momentum for a more sustainable future. Environmental Finance. https://www.environmental-finance.com/content/analysis/building-momentum-for-a-more-sustainable-future.html. 19 Oct. 2020. 
  15. Jennifer Laidlaw. BNP Paribas may lose up to 50% of power clients due to coal policy. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/bnp-paribas-may-lose-up-to-50-of-power-clients-due-to-coal-policy-59871079. 31 Aug. 2020.
  16. Coalition for Climate Resilient Investment. Who We Are. CCRI. https://resilientinvestment.org/
  17. Jennifer Laidlaw. EU recovery plan could act as lightning rod for green bond market. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/eu-recovery-plan-could-act-as-lightning-rod-for-green-bond-market-59741829. 10 Aug. 2020.
  18. Daniel J. Sandberg. When Women Lead, Firms Win. S&P Global. https://www.spglobal.com/en/research-insights/featured/when-women-lead-firms-win. 16 Oct. 2019. 
  19. Declan Harty and Zuhaib Gull. Nasdaq diversity proposal puts thousands of company boards on notice. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/nasdaq-diversity-proposal-puts-thousands-of-company-boards-on-notice-61558109. 10 Dec. 2020.
  20. Camilla Naschert. ‘Stop favoring men’: German law means big companies must appoint women to boards. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/stop-favoring-men-german-law-means-big-companies-must-appoint-women-to-boards-62001664. 7 Jan. 2020. 
  21. Esther Whieldon and Lindsey Hall. Biden $1.9 trillion relief package calls for worker safety, paid leave reforms. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/biden-1-9-trillion-relief-package-calls-for-worker-safety-paid-leave-reforms-62141041. 15 Jan. 2021.
  22. Yekaterina Chzhen, Anna Gromada, and Gwyther Rees. Are the world’s richest countries family friendly?. UNICEF. https://www.unicef.org/media/55696/file/Family-friendly%20policies%20research%202019.pdf. June 2019. 
  23. Nathan Stovall, Azadeh Nematzadeh, Lindsey White, and Laura Skufca. COVID-19 Could Rapidly Expand Family-Leave Policies; It Could Also Deal A Serious Blow To Women In The Workforce. S&P Global. https://www.spglobal.com/en/research-insights/featured/covid-19-could-rapidly-expand-family-leave-policies-it-could-also-deal-a-serious-blow-to-women-in-the-workforce. 19 Oct. 2020.

Why The Green Bond Market Is So Popular In 2021

Originally published 1.18.2021

Green bond issuance last year hit a record—the pandemic couldn’t stop the surge in investor appetite for anything related to renewable energy and environmental responsibility. This year, this new market is set for even stronger growth as energy sustainability becomes the theme of the decade. Last year, total sustainable debt hit a record high of $732.1 billion, BloombergNEF reported earlier this month. This was up by 29 percent on the year despite the pandemic or maybe because of it: the pandemic proved an opportunity for some governments to reinforce and strengthen their commitments to their green agenda.

Take the European Union, for example. The EU already had ambitious green energy goals before the pandemic ravaged its economy. But instead of worrying how it would juggle these goals with the billions of euros in relief and recovery programs it needed, the EU is tying the two together. Member states will only receive relief funds if they pledge to invest a substantial portion of it in green technology.

In fact, earlier this month, the ECB went even further. The eurozone’s central bank was, at the start of this year, allowed by Brussels to buy ESG bonds in its asset purchase offensive aimed at propping up the zone’s ailing economy. This makes it the first central bank in the world to add ESG bonds to the range of assets eligible for purchase as part of quantitative easing efforts.

What are these ESG bonds, then? Environmental, social, and governance debt issued by companies could either be used to address social issues (social bonds), environmental issues (green bonds), or be used to target both social and environmental problems (sustainable bonds). Sustainable bond issuance last year shot up by 81 percent compared to 2019, according to BloombergNEF, eclipsed only by social bonds.

According to Reuters data, the issuance of bonds to fund sustainable projects rose twofold last year, to a record high of $544.3 billion. Together with loans for sustainable projects, the amount lent for sustainable projects hit $750 billion, the news agency reported last week, citing data from its service Refinitiv.

There seems to be little doubt that the market for green debt is thriving. There is also little doubt as to the drivers behind this thriving. The EU is one example, but it is not the only one. U.S. president-elect Joe Biden’s pandemic recovery plan, worth $1.9 trillion, also ties the distribution of funds to renewable energy targets. Even the IMF’s chief recently named green projects crucial for the world’s recovery from the pandemic.

No wonder then that analysts expect the boom in green bond issuance to continue this year: Swedish bank SEB told the Financial Times it expected green bond issuance to hit $500 billion this year. That would compare to an estimated $270 billion in sales of green bonds last year. The EU alone will issue more than $270 billion in green bonds this year, the FT notes, as part of the loan part of its pandemic relief program, which is worth over $905 billion.

Given this growing interest in the green transition – growing so strongly that even Wall Street banks are now jumping on the green bandwagon – chances are we are about to see a true boom in green and sustainable bonds. But since this is not a perfect world, there are challenges.

The biggest of these were laid out back in 2018 by the World Bank’s Director of Economic Policy and Poverty Reduction programs for Africa, Marcelo Giugale. Green bonds, Giugale noted, are not exactly cheaper than “normal” bonds. But they are fungible. That is, they could be used for a purpose different from the one stated as the purpose of their issuance. It is the latter that today seems to be of particular concern: the EU is now on a quest to regulate the nascent green debt market in order to make sure the money raised for sustainable projects is indeed used for sustainable projects.

“It is hard to overstate the impact that the regulations will have,” Thomas Tayler, senior manager at Aviva Investors’ Sustainable Finance Centre for Excellence, told the FT’s Siobhan Riding earlier this month. “It is going to change the way people run their businesses by putting sustainability right at the heart of the investment process.”

In other words, the regulation push will aim to make sure the money poured into green investments is indeed used for these investments. This will mean asset managers offering sustainable funds to investors will need to verify these funds are indeed sustainable, making a market that has been quite opaque so far rather more transparent. Regulation should also take care of concerns regarding “greenwashing” by companies without actual plans to become more sustainable but eager to improve their reputation.

The green debt market seems set to really flourish this year thanks to the rush to decarbonize economies and businesses. And maybe the best part in this rush is that now even big polluters can use green bonds to reduce their emissions: there is now a new type of green bonds that include a specific commitment by the issuer to reduce its greenhouse gas emissions by a set amount by a certain date. This sort of commitment would likely make polluting issuers more credible in the eyes of bond buyers, expanding the green bond market further.

By Irina Slav for Oilprice.com

Congress sets sights on climate change in Covid relief bill

Originally published 12.22.20 – Updated 1.28.21

KEY POINTS

  • The Covid relief package would dramatically cut use of a planet-warming chemical found in refrigerants. It would also funnel billions into clean energy like wind and solar.
  • Chuck Schumer, D-N.Y., the Senate minority leader, said the chemical-reduction measure was the “single biggest victory in the fight against climate change to pass this body in a decade.”

The coronavirus relief bill passed by Congress toughens rules around use of a common heat-trapping chemical and funnels billions of dollars into renewable energy.

The measures, attached to a year-end government funding bill, were hailed by some lawmakers as among the most significant Congress has approved to combat climate change in many years.

More from Impact Investing:
Climate funds hold less than 1% of 401(k) money. Here’s why
BlackRock, $7 trillion money manager, puts climate at center of strategy
Here are some investing options for 2021 — with climate change in mind

The legislative package, which now awaits President Donald Trump’s signature, would cut the country’s production and consumption of hydrofluorocarbons by 85% over 15 years.

The chemical, commonly used in refrigerants like air conditioners and refrigerators, traps heat more readily than planet-warming gases like carbon dioxide.

Chuck Schumer, D-N.Y., the Senate minority leader, said last week that passing the chemical-reduction measure would be the “single biggest victory in the fight against climate change to pass this body in a decade.”

The bill also has measures promoting technology to capture and store carbon produced by manufacturing and power plants, and would cut diesel emissions from certain vehicles.

“All three of these measures will protect our air while keeping costs down for the American people,″ said Sen. John Barrasso, R-Wyo., who chairs the Senate Environment and Public Works Committee.

The bill also allocates $35 billion for clean energy power from wind, solar and other sources, according to The New York Times.

World’s largest money manager says sustainable investing surge to continue, pushes for more disclosure

Originally published 1.26.2021

KEY

  • BlackRock CEO Larry Fink said Tuesday in his annual letter to CEOs that the “tectonic shift” toward sustainability-focused companies is accelerating in the wake of the coronavirus pandemic.
  • “More and more people do understand that climate risk is investment risk. …When finance really understands a problem, we take that future problem and bring it forward,” the head of the world’s largest asset manager said on “Squawk Box.”
  • BlackRock is asking companies to disclose how their business model will be compatible with a net-zero economy.

The world’s largest asset manager is pushing companies to disclose how they will survive in a world of net-zero greenhouse gas emissions.

Because better sustainability disclosures are in companies’ as well as investors’ own interests, I urge companies to move quickly to issue them rather than waiting for regulators to impose them,” BlackRock CEO Larry Fink said Tuesday in his annual letter to CEOs.

The corporate world is waking up to the fact that so-called ESG factors — environmental, social and governance metrics — pose financial risk, and companies that don’t adapt will be left behind.

Indeed, Fink said in his letter that as investors tilt their holdings toward companies focused on sustainability, “the tectonic shift we are seeing will accelerate further.”

“More and more people do understand that climate risk is investment risk. …When finance really understands a problem, we take that future problem and bring it forward. That’s what we saw in 2020, and what we’re seeing now,” Fink said Tuesday on CNBC’s “Squawk Box.”

“The flows even in January into sustainability funds are growing, not shrinking, and this is going to continue in 2021,” he said.

ESG investing became widespread during the bull market boom, leading many to view it as simply a bull market phenomenon. But amid the sell-off in stocks as the coronavirus roiled markets in March, investors piled into sustainability-focused funds. Many of these wound up outperforming their peers.

Last year, from January to November, investors in mutual funds and exchange-traded funds invested $288 billion globally in sustainable assets, a nearly 100% increase from the whole of 2019, according to BlackRock.

“They [investors] are also increasingly focused on the significant economic opportunity that the transition will create, as well as how to execute it in a just and fair manner,” Fink wrote in his letter.

“No issue ranks higher than climate change on our clients’ lists of priorities,” he wrote. “They ask us about it nearly every day.”

Amid the jump in ESG fund flows, some have said it’s reached bubble-like territory and that valuations are beginning to look stretched for some of the most popular pure-play names related to the energy transition.

But Fink said that as in any new trend there will be some winners and some losers. He compared the sector to technology companies over the last 20 years, noting they ultimately grew into their earnings.

This isn’t the first time Fink has sounded the alarm on the corporate world’s role in climate change.

In his 2020 letter, he said a reshaping of finance was underway, and said the firm was overhauling its investing strategy in order to place sustainability at the center.

His 2019 and 2018 letters also focused on the idea of stakeholder capitalism, or that companies should seek a greater purpose beyond lining their shareholders’ pockets.

Critics of ESG investing argue that it’s difficult to score a company given the subjective nature of some of the metrics, as well as an overall lack of data disclosure.

In a bid for greater transparency, BlackRock said it is asking companies to state how their business model will be compatible with a net-zero economy.

In a separate letter to clients, BlackRock said it will help investors identify companies leading the charge by employing a “heightened scrutiny model” in its actively-managed portfolios. The firm will also create a “focus universe” of holdings that are particularly susceptible to climate-related risk.

With $8.68 trillion in assets under management, BlackRock’s words and actions carry weight, and some argue the company’s push toward a greener future is too little, too late.

Of course, its myriad offerings, including ETFs that track the S&P 500, mean it’s difficult to unilaterally sell stocks of companies that engage in activities that might not align with a customer’s values.

“It’s encouraging to see BlackRock finally willing to remove companies from active funds as a consequence of moving too slowly on climate,” said Gaurav Madan, senior forests and lands campaigner at Friends of the Earth. The environmental group is one of the partners in BlackRock’s Big Problem, a global network of NGOs and financial advocates pressuring asset managers for change.

“This is a welcome shift in BlackRock’s strategy,” said Madan. “But that threat alone is not enough at this stage of the pending crisis.”