An anti-Adani protester (Image: AAP/James Ross)

Overnight the world’s biggest investment fund, BlackRock, said it would dump more than half a billion dollars worth of thermal coal shares.

The announcement was part of an extraordinary letter urging company boards to step up their efforts to tackle climate change — from none other than the world’s biggest fossil fuel investor. 

BlackRock has long faced the wrath of environmental groups and shareholders alike for propping up some of the world’s biggest polluters. The group manages upwards of US$7 trillion in funds, meaning any decision it makes ripples the world over. 

In his influential ‘annual letter’ to CEOs, BlackRock chief executive and founder Larry Fink said that the fund would put climate change at the heart of its investment strategy.

“Climate change has become a defining factor in companies’ long-term prospects,” he said. “I believe we are on the edge of a fundamental reshaping of finance.”

Fink, a longtime Democrat who took home US$26.5 million last year, said the fund would exit investments that “present a high sustainability-related risk”, such as thermal coal. 

This will see it dump shares in Australian miners New Hope Group and Whitehaven Coal from its active funds, analysts said. 

“We do not believe that the long-term economic or investment rationale justifies continued investment in this sector,” Fink said.  

So how significant is the announcement, and what impact will it have here?

BlackRock wields incredible power, not just as the manager of trillions of dollars in global assets but as a sort of market soothsayer. The annual Fink letters are treated as gospel in boardrooms, and Australian super funds will likely be under immense pressure to take notice.

The New York Times has already said the announcement could “reshape how corporate America does business” and put pressure on other large money managers to follow suit. 

The announcement is also notable for going beyond the usual ‘tea and biscuits’ approach to engaging with companies to ‘do something’ about climate change. By dumping shares, it is showing that divestment is possible — a route that funds in Australia have been reluctant to follow. 

“This is a clear signal that there are limits to engagement. Australian investors should heed this advice — coal companies are beyond redemption,” Dan Gocher, a director at the Australasian Centre for Corporate Responsibility, said. 

Climate advocates back home have been quick to use the announcement to show that the Coalition’s inaction on climate change was increasingly out of step — even in the corporate world. 

“World’s largest investor is out. Still think thermal coal will last 20 years in Australia? Highly unlikely,” Australian billionaire Mike Cannon-Brookes tweeted. Cannon-Brookes is planning to build the world’s biggest solar farm in the Northern Territory.

A spokesperson for the Minerals Council of Australia said the industry was “proud of its approach to sustainable mining and environmental responsibility”.

BlackRock has faced growing criticism about its role as the world’s biggest investor in fossil fuels. Environmental groups and shareholder activists have urged it to take action, with protesters targeting its offices in London last October. BlackRock’s voting record on companies’ climate change resolutions has also been criticised for failing to live up to its public commitments to tackle climate change. 

But in evidence that the ‘Greta’ effect was starting to seep into even the highest echelons of corporate finance, BlackRock last week announced it was joining Climate Action 100+, a group of global investors that is trying to get the world’s largest corporate greenhouse gas emitters to take necessary action on climate change. 

Nevertheless, Geraldine Buckingham, BlackRock’s Asia Pacific head, told the Australian Financial Review the coal ban was not about “personal or individual views about environment, or you know, what the right policy responses are”. Instead it was about managing risk. 

“It’s become very clear, I think, in the last few years that climate risk represents significant investment risk in portfolios and I think that the regulators, as well as managers like BlackRock, are saying that this risk in the portfolio is material.”