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INVESTMENT ACTIONS

Making sustainability our standard

BlackRock committed to making sustainability our new standard for investing, based on the conviction that sustainability-integrated portfolios can provide better risk-adjusted returns over the long-term to investors. This report offers transparency into our approach and insights.

Overview

This report provides an update on our integration efforts —particularly on progress against the goals set in January 2020 — and a presentation of our approach and lessons learned. We hope that by providing transparency into how we approach integration we can not only meet our clients’ needs1 but contribute to learning, knowledge and advancement.

What to expect
01

Defining an investment conviction

Defining a sustainability investment conviction that is aligned with core business objectives is important for two reasons. First, it helps make the investment value of sustainability-related data and insights intuitive for investment teams. It also enables an ESG integration program to be incorporated into existing investment and risk processes.

02

Understanding the baseline

In early stages, BlackRock’s integration program focused on access to data and tools, and an assessment that established a baseline of practice and helped target education and training. It was recognized that investment teams were at various stages of progress on the journey towards ESG integration, requiring a way to measure and track progress.

03

Delivering on the investment conviction

BlackRock’s ESG integration program sets standards of practice but empowers investment teams to incorporate material information into investment processes using their own judgment to align to portfolio objectives and client preferences. ESG integration standards of practice focus on materiality, investment process and transparency.

Defining an investment conviction

BlackRock has publicly committed to putting sustainability at the center of its investment process, based on the belief that sustainability risk and climate risk are investment risks, and that sustainability integrated portfolios may provide better opportunity for performance over the long term. BlackRock’s approach to sustainable investing is built on a two-part investment thesis, which reflects the firm’s view of changing asset valuations and portfolio risks — both in the immediate as well as the medium-to-long term: first, asset prices and portfolio risks do not yet fully reflect a broad set of sustainability-related considerations. Second, the market is at the front end of a significant reallocation of capital towards sustainable investing, which we believe will result in a flow of capital towards issuers and assets with positive sustainability characteristics (and away from those with negative ones). This in turn will also impact the relative pricing of risk and assets in portfolios.2

BlackRock’s ESG integration assessment model

BlackRock’s ESG Integration Assessment Model

For illustrative purposes only
Source: BlackRock. Investment process is shown for illustrative purposes only and is subject to change.

Understanding the baseline

The breadth of BlackRock’s investment platform called for a thorough assessment of the “state of play” of sustainable investing within each investment team, as well as the opportunities and challenges associated with each. Through a series of 1-on-1 interviews with representatives from each investment team, data was gathered using a standardized questionnaire and internal diagnostic tool to summarize each portfolio management team’s responses into a single “baseline assessment score,” which was then assigned to a level of practice. Conducting and reporting on these assessments routinely enabled the business to track updates over time and identify strategic growth areas and opportunities for engagement.

Quotation start

In order to practice ESG integration effectively, investment teams need to be empowered to use and generate unique material insights to strengthen investment conviction and deepen understanding of the ways in which ESG risks do (and do not) affect long-term return.

Quotation end

Delivering on the investment conviction

ESG integration standards of practice focus on materiality, investment process and transparency. Investment teams use and generate internally developed material insights to drive investment conviction, alongside the use of third-party data and research. In the immediate term, BlackRock has provided ESG metrics in core investment tools and continues to develop analytics to bring that data to life and enable the investment processes described above. Developing dynamic ESG materiality and climate analysis tools will provide a step-function change to investment and risk management research and portfolio review capabilities.

An investment process that ensures sustainability-related risk analysis is considered regularly and provides increased focus for a range of highest-ESG risk holdings. Leveraging two existing governance processes — the review of portfolio risk and performance conducted by our RQA group, and CIO quarterly portfolio oversight meetings — to ensure robustness of the approach.

A transparent investment framework for ESG integration that makes clear how and when in the investment process sustainability-related information is being considered. In addition to the firm-level ESG integration statement, which is available on our website, each asset class platform has an internal ESG integration statement of approach guiding platform practice, and each investment process has an ESG integration disclosure that is included on active product pages globally, as applicable and consistent with applicable local laws and regulations. This information both serves as a baseline for how portfolios are reviewed internally and helps facilitate clear discussions with engaged clients and stakeholders.

Download the full ‘Making sustainability our standard’ report
This report provides an update on our integration efforts, progress against the goals set in January 2020, and a presentation of our approach and lessons learned.
Report Cover
Meaghan Muldoon
Global Head of ESG Integration
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Edward J. Fishwick
Global Co-Head of Risk & Quantitative Analysis
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Helen Jewell, CFA
Global Director of Research for Fundamental Equities, Head of Portfolio Management Group (PMG) Data Strategy and Research
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Cami McNeely
Associate, ESG Integration
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Teresa O’Flynn
Global Head of Sustainable Investing for BlackRock Alternative Investors
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Ashley Schulten
Head of ESG Investment within Global Fixed Income
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