Deploying $130 trillion in private capital to help transition to net zero is key challenge: Black Rock CEO

Finding clean energy and infrastructure projects to deploy trillions in private capital is the challenge that financiers face and governments must resolve, Black Rock CEO Larry Fink said 3 November.

The financial community is committed to bringing that capital forward, but the "key is finding the jobs, and finding the ability to deploy that capital and there lies the fundamental issue today," said Fink, who heads the world's largest investment fund, which has $9.5 billion of assets under management.

Speaking on a climate finance panel at the UN COP26 meeting, Fink was commenting on the $130 trillion in private capital commitments that the Glasgow Financial Alliance for Net-Zero (GFANZ) said it has secured to help economies transition to net zero.

GFANZ is a network of more than 450 banks, insurers, and asset managers across 45 countries that was formed in April by former Bank of England Governor Mark Carney and US Special Presidential Envoy for Climate John Kerry to bring all net-zero financial initiatives, including the Net Zero Asset Managers Initiative, under one umbrella.

With the $130 trillion in private commitments, Carney said: "We now have the essential plumbing in place to move climate change from the fringes to the forefront of climate finance so that every financial decision takes climate change into account."

Enormous amount of capital

The GFANZ announcement made it clear that "there is enormous amount of capital that can be put to work," said Fink, whose firm joined the Net Zero Asset Managers Initiative in March.

But he sounded a cautionary note, both about the realities of deploying capital in a clean energy market that is operating under the risks posed by the vagaries of climate change and the slow pace of government policies.

"The realities are that deploying that [private] capital will be harder than investing in a government bond, public equity, a treasury bond," Fink said, adding that deployment of that capital in a safe and responsible way would require a "better system" than the one in place today.

Fink cautioned Carney and other financial leaders that there is currently no system in place to rapidly deploy private capital to the emerging world without "three, four, five, six years of waiting for regulation and having it passed."

CEOs of auto companies have told Fink that they would move 100% to electric vehicles "but they are frightened that governments are not moving fast enough."

He said it is not surprising to find that private capital is available, but the "surprise will be how slow we put that capital to work if we don't work together."

Urging public and private sectors to work together is the solution, he added.

With the backing of French and German investment funds as well as the Japan Bank for International Cooperation, Black Rock's Climate Partnership Fund has been able to exceed its initial target of raising $500 billion to invest in renewables and related clean energy infrastructure.

Biggest arbitrage

Fink continued in delivering a reality check to the heads of various banks and nonprofit organizations dedicated to aligning public and private capital towards transitioning economies towards a net-zero future. He said net-zero goals won't go very far without the participation of a private sector that is being left behind in all the discussions about climate risk disclosure for publicly traded companies and banks.

He said the financial sector's continued focus on pushing public companies and banks to disclose climate risk without asking the same of the private sector is creating the "biggest capital arbitrage in my lifetime."

"We will not get to a net zero. We are simply lying to ourselves if we think we can just do by conveniently asking financial services and public companies to properly report under the [Task Force on Climate-Related Financial Disclosures] or any other reporting" framework, Fink said.

"We are seeing more hydrocarbons moving away from public entities to private entities. This is not going to the change the world," he added.

Responding to Fink's remarks, Carney noted that UK regulations require large public and private companies to report climate risk.

He also pointed out that the work of the newly formed International Sustainability Standards Board (ISSB), which will be charged with developing a comprehensive global baseline for sustainability disclosure for financial markets, also would apply to all companies, not just public ones.

And finally, Carney said, 40% of the global financial sector is already in GFANZ. "If we are worried about arbitrage, then the question first goes to the 60% that is not."

Commenting on the discussion at COP26, Anne Shannon, a member of UK-based Access Partnership, a public policy team involved in technology markets, agreed with Fink that the private sector and governments need to work together to create a blend of policies and standards that will drive the global transition.

"While $130 trillion has the potential to drive change in climate finance, commitments such as these don't always equal action," she said. "As countries continue to announce pledges at COP26, it will come down to national governments and policymakers to turn those pledges into concrete legislative action that drive real change."

Posted 03 November 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst