BlackRock announced this week that it will avoid investments in companies that have a high sustainability-related risk, a move the firm's CEO Larry Fink says will fundamentally change how American companies conduct business.
BlackRock, the world's largest money manager with nearly $7 trillion assets under management, will begin to exit investments in coal production, introduce funds that ban fossil-fuel stocks and vote against corporate managers who aren't making progress on fighting climate change.
"Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance," Fink wrote in the annual letter to company executives. "The evidence on climate risk is compelling investors to reassess core assumptions about modern finance."
The announcement, which comes as BlackRock grapples with growing global protests against its investing practices, received mixed reactions from climate activists.
While the plan could transform how companies respond to the climate crisis, it's unclear the extent to which BlackRock will pursue the approach and pressure companies to become more sustainable. Many climate activists argue that BlackRock isn't doing enough to combat climate change since it continues to own oil and gas stocks, and warn that it won't be easy for the company to reform its investments.
"BlackRock's announcement today is a major step in the right direction and a testament to the power of public pressure calling for climate action," said Sierra Club campaign representative Ben Cushing.
"But BlackRock will continue to be the world's largest investor in coal, oil and gas," he added. "BlackRock should expand on its commitments and other financial institutions should follow suit."
The company holds a 6.7% stake in Exxon Mobil, 6.9% in Chevron and 6% in mining company Glencore. BlackRock will likely continue to hold those stocks because a lot of BlackRock's assets are invested in passive index funds, which reflect the market indexes the funds track.
BlackRock also has among the worst voting records on climate issues, according to Ceres and Morningstar data. BlackRock and investment firm Vanguard have opposed more than 80% of climate change-related motions at fossil fuel companies between 2015 and 2019, according to data collected by ProxyInsight.
BlackRock did not respond to CNBC's request for comment.
Despite its record, BlackRock recently announced it would join Climate Action 100+, a global alliance of over 370 investors focused on cutting global carbon emissions.
"Larry Fink talks a lot about companies' purpose, but there are questions left unanswered about what BlackRock's own purpose is, and how its stewardship delivers the social, environmental, and financial performance that its clients are looking for," said Jeanne Martin, campaign manager at ShareAction, the responsible investment group.
Climate activists have held several protests outside of BlackRock's offices in past months. During one demonstration in London, protesters glued themselves to the doors of BlackRock's office, and during another demonstrators dropped wood ashes at the office to represent the destruction of the Amazon rainforest.
"BlackRock's new initiatives match the size of the crisis we're seeing in 2020 and are the direct result of an outpouring of pressure from the global climate movement," said Diana Best, senior strategist for the Sunrise Project, a climate change group.
Some have pointed out that if BlackRock had announced the initiative years ago, it would have been a major benefit for clients, considering that the entire S&P 500 has almost tripled over the past 10 years while the energy sector in the S&P 500 has under-performed.
"There's been a big movement to divest large investment firms from investing in fossil fuels, and that's a start," said Ford Seeman, founder and president of nonprofit Forest Founders, a subscription-based platform where users can negate their carbon footprint by planting trees.
"But the BlackRock announcement would have sounded a lot better 10 years ago, not when investing in renewable energy is actually cheaper than fossil fuels," Seeman said. "It ultimately makes for a feel-good story."