BlackRock and the shift to sustainable development
The news hit this week that BlackRock is shifting focus to sustainable investing (see “BlackRock shakes up business to focus on sustainable investing” in the Financial Times dated 1.14.20). According to CEO Larry Fink, the company will start evaluating the environmental impact in the same way it evaluates credit and liquidity risk. With $7 trillion in AUM, BlackRock might finally be the company to enact change in how businesses operate. Despite some positive forward steps on a government level, such as France’s ban on some single-use plastics, I have long been skeptical that change in environmental responsibility or impact will come out of government action.
A number of studies have shown that most people want to see environmental change, but few seem willing to make the lifestyle changes that come with this. And not just on an individual level. Look at how the current administration has been rolling back government regulation (see “95 Environmental Rules Being Rolled Back Under Trump” in the New York Times dated 12.21.19). However, if *investors* were to demand the change, well, we all know that money talks.
It won’t be long before this growing investor demand for environmental sustainability impacts real-estate development. I foresee investors asking developers to include environmentally friendly design, not just as a marketing piece, but as a requirement in the same way BlackRock is evaluating its portfolio companies. My hope is that with the increased focus and demand for environmentally responsible construction, that prices for these designs and materials will come down, creating a positive feedback loop and further increasing the incentive to adopt these practices.
Game theory would indicate that we are caught in a Prisoners’ Dilemma. It will take a high level of commitment to keep developers from “cheating” in an effort to goose yields and attract investment money. But with leaders like BlackRock moving in this direction, we may finally have the leadership needed to make the changes we all ultimately know we need to see.