pricing sustainability into the bottom lineNovember 2007
Blackrock, part owned by Merrill Lynch, carries out indepth research into companies’ social, environmental and ethical performance for use across its investments. By Mike Scott
Alex Popplewell sees his job as head of socially responsible investment research at Blackrock – the investment company 49 per cent owned by Merrill Lynch following the merger of Blackrock and Merrill Lynch Investment Managers in 2006 – as ensuring that non-financial risks are taken into account across the firm, which had more than $1.3trillion (£635bn) assets under management at the end of September.
‘We did not start with a view that responsible investment is a winning investment style – the impetus came almost entirely at our clients’ behest. We run money for a number of religious groups and charity funds. We have a common fund for Catholic charities, we have Sharia clients, Jewish clients – if we can help them meet their needs, we do,’ he says.
While the firm does have funds that fall into the SRI mould – the New Energy Technology Fund, for example – it does not have a tradition of such funds. However Blackrock does share concerns of the SRI community. ‘We have always had a tradition of being engaged in the companies we invest in. On some issues – land-mines, for example – we tend to follow the stance of the Norwegian government, but mostly we like to sit down directly with clients and talk about the issues,’ Popplewell explains.
Exclusions tend to vary across funds – ‘one of our church funds decided they did not want to invest in newspapers because they did not want to be seen to be promoting any particular point of view,’ Popplewell says. ‘Our academic funds, meanwhile, tend to have rotating agendas as various causes go in and out of fashion. In the 1980s it might have been the situation in Central America, now it’s climate change.’
While Popplewell is dismissive of bandwagons, he recognizes the importance of environmental, social and governance issues to the bottom line. ‘We are in favour of being able to price these factors correctly. We do not participate in the Enhanced Analytics Initiative because of our size, but we fully agree with their view of what is good research,’ he adds. Blackrock has signed up to the Institutional Investors Group on Climate Change and the Extractive Industries Transparency Initiative.
Popplewell explains that Blackrock’s policy is to be an active investor rather than an activist. ‘If we are not happy with management, we tend not to buy in the first place. We are in favour of proper risk management, but our sanction is more to sell our shares [if engagement doesn’t yield results] than to conduct a high-profile campaign against the company.’
Climate change has rightly been a big focus, but the argument has moved on from whether the science is correct, to ‘what are the costs and opportunities?’ Popplewell believes. This will mean investment decisions in areas such as clean energy and nuclear power. ‘Nuclear is an interesting one with the focus on carbon emissions and energy security. Issues over security and waste disposal still haven’t been resolved.
‘Another issue we’re keeping an eye on is water rights,’ he adds. ‘As droughts increase and water becomes scarcer, what will happen to agriculture in places like the US and Australia? We are launching an agriculture fund soon to tap into that idea.’
But while climate change has hogged the headlines, Popplewell believes other issues are moving higher up the agenda. ‘Health and safety; the HIV/AIDS issue – particularly in China, India and Russia; obesity; educational opportunities – all these are important,’ he concludes.
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