The climate crisis is reshaping the world of finance

Historians should mark the date. On Jan 14, BlackRock, the world’s largest asset manager, with more than $7.4 trillion under management, announced that the climate crisis has now grown so severe that it has become a force that will “fundamentally reshape” the world of finance.

In his annual letter to CEOs, Larry Fink, CEO of BlackRock and one of the most powerful corporate executives in America, warned that BlackRock now expects to see business plans for “operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized.” He also promised that his company will “hold accountable” any companies’ board members that do not make sufficient progress in aligning their business model with the Paris Agreement’s goal.

This is no idle threat. BlackRock holds an 8 to 11% stake of every company in the Fortune 500. Shareholder resolutions and board appointees are made or broken on how BlackRock votes. When Larry Fink speaks, Wall Street CEOs listen.

It should come as no surprise that the climate crisis — a force that is fundamentally reshaping our physical world, from turning our oceans into an acidic mess to turning the Arctic into an open-air swimming pool — is also reshaping the financial system. The only question now is if we can reshape the world of finance fast enough to prevent our physical world from being reshaped beyond all recognition. There are a few promising signs.

Over the last 10 years, the fossil-fuel divestment movement has grown to secure commitments of some form of fossil-fuel divestment from more than $12 trillion worth of investment capital, largely from religious institutions, pension funds, university endowments, and major charitable foundations. That number is continuing to grow, but now we’re also seeing major banks, insurers and asset managers move away from the fossil-fuel industry as well.

In December, Goldman Sachs, one of the most powerful banks on Wall Street, announced a major new policy that prohibits funding coal mines, power plants and Arctic oil drilling projects; Goldman has also promised to provide at least $750 million in loans to climate adaptation and mitigation projects by 2030. In Europe, too, major banks have already made big shifts away from fossil fuels. BNP Paribas, the second-largest bank on that continent, has ceased providing new loans to tar sands and fracking projects.

In the last month, insurance companies Liberty Mutual and The Hartford have announced their own policies, committing to stop insuring coal companies and coal and tar-sands projects and companies, respectively. Given the existential threat that the climate crisis poses to the insurance industry, you’d think that’s the least they could do. In California, wildfires have grown so costly and devastating and so many insurance companies were canceling policies in fire-prone areas that the state had to step in and make it illegal to cancel a homeowner’s policy if they lived in or around ZIP codes impacted by wildfires.

Elsewhere, Microsoft announced Jan. 16 that it would be carbon negative by 2030, that it would be investing $1 billion in a climate-innovation fund over the next four years, and that it would be pushing suppliers, customers and policymakers to cut emissions as well. (Unfortunately, the announcement did not mention the fact that Microsoft sells AI to fossil-fuel companies to help them extract as much coal, oil and gas as possible, a fact that seems starkly at odds with Microsoft’s expressed values on climate change.) Two days later, Starbucks made its own commitment to slash its carbon emissions, waste and water usage in half by 2030.

But it is BlackRock’s announcement that is the biggest of them all. The world’s largest money manager has now told us that the fossil-fuel game is up and that the world of finance will need to respond accordingly. The movement, while accelerating, did not save an estimated 800 million animals incinerated or that choked to death in Australian bush fires. But it’s better late than never. The only question now is whether or not the rest of the fossil-fuel industry’s Wall Street backers, such as banks like the world’s largest funder of fossil fuels, JPMorgan Chase, will pay any attention and rapidly align their business models with the Paris Agreement.

Or will they continue to put short-term profit over people and planet?