Dividends and We are not the environmental police: Blackrock CEO says

In the last decade we have seen the rise of ETFs and low cost funds, this was great news for investors because of the nature of the holding. If a fund mimics the index of the stock exchange and at least twice a year, the losers are replaced by the winners, over the long period of time the index will tend to rise. The key is long term, low cost, but no one knows when the stock market will rise and fall, but we do know the fund will tend to go up over the long term. Blackrock has the ishares and the other big players are State Street and Vangard. For Blackrock, every year CEO Larry Fink writes a letter about where he sees the financial world moving towards. A few years ago, seeing weather changing, he help develop ESG tools to evaluate companies.

In an article by Jeffery Jones of Reuters, Mr. Fink has been taking heat from Republicans because moving to ESG means to lessen reliance on fossil fuels. For many Republicans, fossil fuels have been very good for the economy for decades and they do not want to change. even at margin. However, the insurance companies which pay for damages to infrastructure after climate change has or is happening, want to pay less. The best way to pay less is prevention or ensure the problem becomes less of a problem.

Mr. Fink believes ESG is important and the company has developed metrics to evaluate how companies are doing but he said it is not his company’s role to drive the agenda for how society should deal with climate change. It is up to government to make policy for how companies will disclose and cut emissions. Investment firms such as Blackrock are not the environmental police, their purpose is to understand the risk management of the company they invest in.

In his letter, which is available to read on the Blackrock web site, Mr. Fink notes the costs of climate related natural disasters is rising and was $120 billion in 2022 of insured losses. Insurance companies are passing on costs to consumers with higher premiums. This means that some will take less insurance and be less covered by the next natural disaster in their region and the storms are getting both bigger and cause more damage.

An investment firm similar to Blackrock’s job is for analysts in the company to determine a range of scenarios to determine the impact on clients’ portfolios.

Linking to dividend paying stocks, we know prevention of natural or man made disasters is the best route, but prevention often comes at a cost because if companies do something and nothing happens, is the money not put to its highest and best use. As investors one expects profitable companies to act the most responsibility because the company makes a profit and can pay a dividend. If a profitable skips on preventable items, what do you think a non-profitable company would do? One can hope that increasing natural disasters are on a cycle, but the cycle seems to be more normal than before so you can ask your senior management of your investments – how do they see increasing natural disasters and how are they coping with them? If you like the answer, then you can hold otherwise searching for alternatives is a good thing.

There are more questions than answers, till the next time – to raising questions.


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