In a new letter to clients, investment giant BlackRock pledged to guide and advise investors through the net zero transition, outlining a broad approach to protect portfolios from climate-related risks and to identify and invest in opportunities arising from the multi-decade global decarbonization drive.

The letter, sent to clients who have “expressed interest in the net zero transition,” highlighted the issues of greatest concern to investors, outlining several common questions that BlackRock has fielded from clients, ranging from how to safeguard investment portfolios against physical climate risks and transition risk, to the best approaches to capitalize on transition-related opportunities such as new climate solution technologies.

BlackRock has emerged as a leading voice on the need to deeply integrate climate and sustainability considerations into the investment process and on the role of the investment industry in driving the net zero transition. BlackRock CEO Larry Fink’s high profile annual letters to CEOs have focused heavily on the net zero transition, indicating to portfolio companies in 2020 that sustainability, and climate action in particular, would become a central consideration in the firm’s investment process going forward, and diving deeper in 2021 into the risks and opportunities to companies and investors from the global transition to a net zero economy.

In this year’s CEO letter, which focused more broadly on the centrality of stakeholder capitalism and corporate values and purpose to long-term investment returns, Fink warned that the disruptive nature of the rapidly emerging net zero transition will lead companies to fall behind, while also noting the enormous opportunities created as the economy is transformed by sustainable technology.

In the new letter to clients, which follows a dramatic ramp in nations committing to pursue net zero goals and trillions of capital flowing into ESG investment strategies, BlackRock frames the primary issue for investors to consider as not “whether the net zero transition will happen but how – and what that means for your portfolio.” Noting that the “speed and shape of the transition are deeply uncertain, and it will take decades to play out,” the letter added:

“Our focus on understanding the how of the net zero transition is driven, as always, by our role as a fiduciary. It is based on our abiding conviction that long-term investors must consider the implications on their portfolios of both physical climate risk and the transition to net zero in the real economy, and that by taking these factors into account, they can more effectively manage risk, seize new investment opportunities, and achieve better long-term returns.”

While risk management is clearly a focus for the firm in navigating the impact on portfolios from climate-related factors, the letter points to emergence of major opportunities arising from the climate transition:

“Markets are only beginning to price in the effects of the climate transition on asset prices, creating a significant opportunity for our clients.”

While many investors, including BlackRock, are seeking opportunities from investment in climate-solutions focused companies such as renewable energy or electric mobility, the letter points to the “underappreciated opportunity” to identify and invest in “carbon-intensive companies that are positioning themselves to lead decarbonization within their industries.”

BlackRock outlined several of the initiatives it will take in order to guide investors through the transition. Most notably, the firm stated that its efforts will be driven by a newly developed transition framework. Key elements of the new framework include “Navigate,” involving helping determine how the multiple forces of decarbonization will impact portfolios and positioning accordingly; “Drive,” a more active approach to help clients drive the transition forward and capture value while contributing to transition progress, and; “Invent,” focusing on the opportunities to invest in clients and businesses driving climate tech and solutions.

The letter set out several actions BlackRock will pursue in order to advance each element, including launching new investment strategies ranging from climate aware to active, thematic and green-bond focused, to plans to establish new capabilities focused on transition finance for emerging opportunities. The company is also developing “Blackock Transition Scenario,” aiming to build the industry’s clearest map of how the transition is likely to unfold across technologies, sectors, and regions.

The letter concluded:

“We are committed to being the world’s leading advisor and expert on investing in the net zero transition. We are committed to giving you the most sophisticated, up-to-date analytics and the deepest understanding of how the transition will unfold. And we are committed to helping you select the investment options that are right for you and your stakeholders. It is our privilege to work with you to navigate, drive, and invent this economic and financial transformation.”

Click here to view BlackRock’s letter to clients.