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How Big a Deal Is BlackRock's Sustainable-Investing Push?

For years, BlackRock (NYSE: BLK) CEO Larry Fink has used his annual letter to CEOs to tout the importance of social progress and challenge shortsighted businesses and governments that just focus on profitability. This year's letter made waves because he's finally putting his money where his mouth is by introducing some concrete steps in response to climate change.

In sum, Fink's letter said that climate change creates direct financial risks and that portfolios need to be adjusted to account for them. This is obviously a big job to tackle. However, if some of these steps are fully embraced and enforced, they have the potential for tremendous social and environmental impact.

Impacts on financial reporting and disclosures

BlackRock wants companies to more clearly disclose how their operations affect not only their bottom lines, but also the environment. This is a challenging request and would require government support for it to happen.

In the meantime, the Sustainability Accounting Standards Board (SASB) has established guidelines for addressing long-term environmental concerns and also requires companies to report statistics, such as the amount of energy and water they consume, their emissions, and the use of certain chemicals and materials. In a similar effort, the Task Force on Climate Disclosures (TFCD), of which BlackRock was a founding member, is lobbying to have more climate-related information required in corporate reporting.

Fink also called for adding Environmental and Social Governance (ESG) impacts into financial reporting and analysis. Basically, investors need real data to accurately gauge the state of businesses' ESG activities and their financial implications. The CFA Institute suggests companies should provide hard numbers on a range of metrics, such as the carbon footprint of their operations, the number of jobs they've created, the net increase in the number of women and minorities they employ, how many employees have been trained, etc.

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