In their annual shareholder letters, the CEOs of America’s two largest financial institutions included climate change as a central issue for investors.
BlackRock (BLK) CEO Larry Fink and JPMorgan Chase (JPM) CEO Jamie Dimon said the costs of climate change are becoming more apparent, whether from disaster events like floods and wildfires or from building resilience to climate change. and from the investment needed to transform the economy. Towards renewable energy.
Those risks are becoming increasingly difficult for market watchers and investment professionals to ignore.
“For years now, we have viewed climate risk as an investment risk,” wrote BlackRock’s Fink. “Finance is not immune to these changes. We are already seeing insurance costs rising in response to changing weather patterns.”
Activists hold likenesses of bank CEOs during a “Stop Dirty Banks,” rally and protest Tuesday, March 21, 2023, in Washington. (AP Photo/Alex Brandon)
Dimon also noted these risks, emphasizing the balance between energy supply concerns in the near term and the consequences of not doing enough to stop global warming.
“The window for action to prevent the most costly impacts of global climate change is closing,” he wrote in his annual letter to shareholders. “At the same time, the ongoing war in Ukraine is crippling trade relations in Europe and Asia and redefining the way countries and companies plan for energy security. Along with that, necessary investments need to be made.” Decarbonize for Tomorrow underscores the inextricable link between economic growth, energy security and climate change. We need to do more, and we need to do so immediately.”
BlackRock and JPMorgan have faced scrutiny for their financing of the expansion of fossil fuels, one of the biggest drivers of the climate crisis. At the same time, he has faced growing opposition to his association with climate change and his consideration of environmental factors as part of a risk analysis framework commonly known as ESG – Environmental, Social and Governance Investing.
As banks and asset managers become a new frontier in the climate discourse – and a key lever in the energy transition – they will need to navigate these challenges and unexpected disruptions, as in the case of the COVID-19 pandemic and the invasion of Ukraine. happened.
“As we think about this net zero transition, this net zero journey, there is no template,” Wei Li, chief investment strategist at BlackRock Global, told Yahoo Finance Live (video above). “We’ve never done this before, so as we think about what this means for the macro outlook and inflation forecasts, we believe this represents a series of supply shocks against which we need to hedge our portfolios.” need to be protected as well.”
Lee said BlackRock’s inclusion of climate risk in its forecasts and strategic asset allocation “underpins our strategic sectoral preference for the likes of technology and health care.”
She also pointed to the dynamics in energy markets in 2022, where energy outperformed as the Russia-Ukraine war pushed up oil prices, but renewables also did well.
When Russia cut off supplies of natural gas to Europe, it tested the net-zero resolve of many nations, which were considering burning coal and importing gas from elsewhere to meet their energy needs. At the same time, Europe deployed solar, wind and battery technology in record amounts. The number of heat pumps installed globally increased by 11% last year.
Nevertheless, the energy transition is still in its early stages. As the Department of Energy has asserted, America is “in an era ofto deploy, to deploy, to deploy,” implying that other supply shocks have yet to appear, especially as rising demand for renewable energy comes up against shortages of materials and skilled workers.
According to Lee, market participants would be wise to prepare for this.
“This is one reason why we believe that inflation is likely to stabilize at a level that is higher than pre-pandemic levels,” she said. defenses, especially over long-term horizons is important.”
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