BlackRock Inc. will ditch investments with high sustainability-related risk as climate concerns drive a sweeping change in the way the world’s largest asset manager invests its US$7 trillion in assets.

“Climate change has become a defining factor in companies’ long-term prospects,” Chief Executive Officer Larry Fink wrote in his annual letter to corporate executives on Tuesday. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

Fink is tackling the subject as asset managers come under greater pressure on sustainability and climate change. BlackRock has been moving toward a more public stance on climate, as activists and non-profit groups increasingly scrutinize the firm’s behavior and voting record around environmental issues.

Fink outlined a number of initiatives, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening the firm’s commitment to sustainability and transparency in its investment stewardship activities.

Earlier in January, BlackRock joined Climate Action 100+, a group of more than 370 investment managers with a combined $41 trillion in assets. Together the campaign’s members are pressuring the world’s biggest emitters of greenhouse gases to reduce their environmental impact and disclose more information on how climate change will affect their businesses. The company also listed environment and climate risk among its top priorities for meetings and discussions with the public companies it owns, according to its 2019 investment stewardship report.

Under Spotlight

Fink’s letter builds on previous missives advising corporate leaders on how to orient their businesses for the long term. In previous years he’s underscored the theme that profit and social purpose are inextricably linked. People are looking to corporate executives to step in and offer fixes to social problems that governments are failing to solve, Fink wrote in last year’s letter.

Activists have been calling on BlackRock to do more around the climate crisis. Groups including Amazon Watch, the Sunrise Project, and coalitions of youth activists and parents have all targeted the firm, asking for more action around the global crisis of climate change. Former U.S. Vice President Al Gore attacked big index fund firms recently too.

“I think the large passive managers have a real difficult decision to make,” Gore told the Financial Times in December. “Do they want to continue to finance the destruction of human civilization, or not?”

Protesters follow Fink to speaking events and galas. Some call on BlackRock to divest from the fossil fuel companies where it sits among the largest owners; as a giant of passive management, the firm often points to the fact that it can’t divest from companies listed in indexes.

BlackRock’s size puts it in a delicate position: operating in more than 30 countries, and as one of the biggest holders of most U.S. publicly traded companies, its clients include large sovereign wealth funds, state pension plans and financial advisers with viewpoints that don’t necessarily align on what to do about climate change and social justice issues.

Non-profit Majority Action analyzed the 2019 proxy voting records of BlackRock and its peer Vanguard Group, and found the two firms voted against at least 16 climate-related shareholder proposals where their support could have given the measures majority support. In contrast BNP Paribas SA and Pacific Investment Management Co. voted in favor of almost all of the 41 climate-change resolutions that Majority Action analyzed in its study.

--With assistance from Nishant Kumar.