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Larry Fink, Chief Executive Officer of BlackRock, stands at the Bloomberg Global Business forum in New York, Sept. 26, 2018.Shannon Stapleton/Reuters

The chief executive officer of the world’s biggest asset manager remains certain that climate change presents a major investment risk, but contends it is not his company’s role to drive the agenda for how society should deal with it.

BlackRock Inc. CEO Larry Fink has made waves in recent years by demanding companies in funds explain in detail how they will thrive in a low-carbon economy. But in his annual letter, Mr. Fink said governments are in charge of making policy for how companies will disclose and cut emissions, and investment firms such as his are not “the environmental police.”

His comments follow a year of mounting criticism, especially among some U.S. Republican politicians, that BlackRock and other major fund companies are pushing a “woke” agenda on business, by demanding better performance with environmental, social and governance issues. Some, including Florida Governor Ron DeSantis, have parlayed anti-ESG messaging into campaign fodder and even public policy.

Mr. Fink’s annual letters have become required reading in the finance world. This year, he combined letters to CEOs and investors into a single wide-ranging missive addressing his approach to sustainable investing, proxy voting by BlackRock clients, the economic outlook and assessment of the impact of Silicon Valley Bank’s collapse.

He stressed BlackRock’s job is to analyze a range of scenarios – including with climate change and the energy transition – to determine the impact on clients’ portfolios.

“It is not the role of an asset manager like BlackRock to engineer a particular outcome in the economy, and we don’t know the ultimate path and timing of the transition,” he wrote in the letter, published on Wednesday. “Government policy, technological innovation, and consumer preferences will ultimately determine the pace and scale of decarbonization.”

Still, he said, the costs of climate-related natural disasters are exorbitant, rising to an unprecedented US$120-billion in 2022 in terms of insured losses. That is hitting home with consumers, who are faced with surging insurance rates. It could mean a major shift in the U.S. housing market if homeowners are forced to relocate to avoid coastal flooding or persistent wildfire risk.

As a minority shareholder in numerous companies, it’s not up to BlackRock to tell CEOs what to do, Mr. Fink said. But he has advocated for better disclosure of climate-related risks so it can judge how long-lasting investment returns will be. In previous letters, he has warned that companies that fail to plan for a low-carbon future face potential proxy contests against management, and even divestment.

On Wednesday, he asserted the oil and gas industry has a role to play in ensuring the security of energy supply while also investing to lower emissions.

“To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas, with steps taken to mitigate methane emissions, will remain important sources of energy for many years ahead. BlackRock is also investing, on behalf of our clients, in responsibly managed natural gas pipelines,” he said.

Mr. Fink said BlackRock has options in a range of funds for clients who want to align their investments with accelerating the energy transition as well as for those who choose not to.

He said the U.S. Inflation Reduction Act, which includes US$369-billion of incentives for renewable energy and other clean tech, is creating investment opportunities for BlackRock’s clients in such fields as carbon capture and hydrogen produced from non-hydrocarbon sources.

Meanwhile, Mr. Fink said the global economy is now paying for years of what he called “easy money” – low interest rates that were a factor in driving up inflation. The price is the steep rise of almost 500 basis points in rates over the past year. Bond markets fell 15 per cent in the past 12 months, but still, he said, referencing old western movies, it was “Quiet, too quiet.”

That changed with the collapse of Silicon Valley Bank, and two smaller banks that served the crypto world – Silvergate and Signature. He said it is too early to gauge how widespread the economic fallout will be.

Mr. Fink said he didn’t know if the consequences of “easy money and regulatory changes” will ripple through the U.S. regional banking sector, and, like the savings and loan crisis of the 1980s and early 1990s, result in seizures and shutdowns of financial institutions. “It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks,” he said.

On the macro side, the high cost of insuring national security and global supply chains could keep inflation elevated in the range of 3.5 per cent to 4 per cent over the next few years, he predicted.

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