What Blackrock And Friends Mean By "Climate Risk" - It Has Little To Nothing To Do With Climate
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But this isn’t what risk means in a financial sense. In this context, the Oxford English Dictionary explains, risk is “the possibility of financial loss or failure as a quantifiable factor in evaluating the potential profit in a commercial enterprise or investment.” For financiers, risk is not something to be avoided but something to be managed: You want to measure and assess it, not eliminate it. It’s central to BlackRock’s mission to help its investors “manage risk and achieve your investment goals,” as the climate letter to investors emphasizes in its very first sentence.
Fink uses “risk” in both senses, interchangeably. Climate change is the most important factor facing investors in the future, he writes, in part because of the “physical risk” associated with rising temperatures but also because of how corporations will weather the transition to a low-carbon economy. The risks to life and land posed by climate change will trigger new reallocations of capital: whether to offer mortgages and insurance in hurricane zones, rebuild shattered areas, invest in renewable energy sources or carbon-sequestration technologies, or to salvage and retool municipal infrastructure.
Managing the investment risk of climate change, in short, does not mean fighting climate change. It means making sure that your investment portfolio earns the highest returns despite climate change or even from climate change. That’s why, from an investment point of view, there’s no necessary contradiction in divesting from coal mines while investing in coal-fired power plants or in financing wind turbines and oil exploration. The expense of oil exploration is an investment risk, and drilling in the Arctic is a climate risk. Arctic drilling by ConocoPhillips and Chevron is a climate risk that makes a petroleum investment less risky.
And then there’s “sustainability,” the bedrock of the firm’s new investment policy. It’s an alluring word, but a vague one. BlackRock’s letter to investors and CEOs announcing its new climate focus never explains what it means. Does sustainable mean, for example, “fossil fuel free”? ($18 billion says no.) And sustainable for whom—indigenous Brazilians, say, or JBS investors?
Sustainable development, as the phrase is typically used, means development that meets the needs of the present without compromising those of the future—a laudable goal but too general to reliably take to the bank. Here, the devil is very much in the details and specifically in the definition. “Sustainable” is a popular concept in consumer-oriented environmentalism and a concept embraced by energy firms, precisely because it is both uniformly positive and, by itself, totally noncommital. Nobody dislikes sustainability, and it is capacious enough to welcome all comers. It benefits from the fact that it is an inherently comparative term, not an absolute one. That is: To be “sustainable” really means only to be more sustainable than something else that is less sustainable. Driving a 2019 Buick might be more sustainable than driving your grandma’s Buick, but it’s not much of a climate policy.
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https://newrepublic.com/article/156536/wall-street-really-means-talks-climate-risk