BlackRock's Fink: 'Tectonic Shift' in Passive Investing Is Coming

A public company could sell its polluting plant to a private enterprise, which would enhance its sustainability rating but would not reduce carbon emissions in the world, Fink explained.

"It's not decarbonizing when you just move the assets around," said former SEC Chair Mary Schapiro, vice chair of global public policy for Bloomberg L.P. , who also participated in the webinar.

The SEC's Role

The SEC has "real power" to inform public markets about climate change risk and can work with private companies as well, Schapiro said, but it "can't tell companies to reduce their carbon emissions. Congress does that and the administration can set targets."

The SEC can, however, "write disclosure standards to improve quality of data and comparability" of that data for the marketplace, said Schapiro, adding that she hopes the agency does that in concert with regulators in Europe and other other regions. The SEC currently does not require companies to specifically disclose risks posed by climate change — neither physical risk nor transition risk — but it does require that companies disclose material risks that could affect their operations and business.

The Public Markets

In the meantime, more public companies are releasing disclosures based on SASB and TCFD standards, said Fink. He expects most companies will issue "some form of reporting" on those issues in the next three to four years but said a global standard for reporting is necessary. "The faster we do that, the faster we can move forward."

Also, the capital markets are already doing some of the work to address climate change. Markets are repricing companies based on their carbon footprints, Fink said. The shares of publicly traded renewable energy companies are trading at price-to-earnings multiples of 26-27 while hydrocarbon companies are trading under 10 P/E.

The latter companies, however, may just choose to go private, said Fink. "If they do that, if society doesn't look at this holistically, we are not going to succeed."