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Climate Change And Equity Capital Allocation

Climate Change And Equity Capital Allocation

Professor of the Practice at Middlebury College in Vermont.
Last week I shared some notions on climate change and debt capital allocation. This week I would like to focus on the rapport between climate change and equity capital allocation.

Every year Blackrock BLK +1%’s CEO, Larry Fink, shares his company’s Engagement Priorities in respect of their target investment universe. In March of this year, the priorities were identified as governance, corporate strategy and capital allocation, compensation that promotes long-termism, human capital management and environmental risks and opportunities. Regarding the last, the priorities are rich in principles, but lack capital allocation detail on how corporations could be rewarded or incentivized.

This week BP’s CEO Bernard Looney unveiled a plan to boost BP’s renewable power generation to 50 gigawatts (GW) while shrinking oil and gas output by 40% compared with 2019 by 2030. Earlier in February, BP’s CEO admitted that the world’s carbon budget is finite and running out fast, which was a first for a fossil fuel executive. The carbon budget has currently been set at 1,060 Gigaton CO2. Looney added that there was a need for a rapid transition to net zero and to achieve this ambition trillions of dollars would need to be invested in rewiring the world’s energy system.

So how would BP’s disclosures impact Blackrock’s Engagement Priorities and what would an environmental risk apprehensive equity capital methodology look like?

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