(Bloomberg) -- BlackRock Inc., the world's largest money manager, told clients that financial markets are just starting to price in the effects of climate change, which creates significant investment opportunities in industries including oil and gas.
Transitioning to net-zero carbon emissions will take decades and risks include energy price swings, BlackRock senior executives wrote in a letter to clients and a research paper. Investing in fossil fuel companies that are working to reduce their carbon footprint is an “under-appreciated opportunity,” according to the asset manager.
“Today there is a significant degree of uncertainty about the transition,” wrote executives including Philipp Hildebrand, vice chairman, and Mark Wiedman, head of international and corporate strategy. “The issue, however, is no longer whether the net zero transition will happen but how – and what that means for your portfolio.”
BlackRock is positioning itself as a leader of renewable energy investing, but has also faced criticism from environmental groups for not doing enough to pressure fossil fuel companies. And even the most climate-progressive firms have found it difficult to completely ditch polluting industries when countries are still years away from clean energy.
“BlackRock deserves credit for its leadership thus far,” said Ben Cushing, fossil-free finance campaign manager at the Sierra Club. “But successfully navigating and leading the transition will require hard choices about how to stop investing in the companies holding us back.”
A subsidiary of Brookfield Asset Management has also touted sectors such as gas pipelines. Oil and gas companies were among some of the top performers in the S&P 500 index this past year.
Read more: BlackRock, Brookfield Pipeline Bids Underscore an ESG Dilemma
Other highlights from BlackRock's letter and report include:
- Natural gas “will play an important role” given its lower carbon intensity compared with other fossil fuels.
- An orderly climate transition could result in higher inflation by about 0.4 percentage points per year, though that will be lower than a disorderly shift which could lead to spikes in inflation and shocks to the economy.
- Investors are expecting higher returns from “green” assets and lower ones for “brown assets” and the repricing in markets will take years to unfold.
- BlackRock is building on Aladdin Climate, its risk analysis system, integrating decarbonization more deeply, and is planning additional active public-markets, index and green bond strategies.
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