BlackRock, the world’s largest asset manager, announced today the launch of Aladdin Climate, a software-based solution enabling financial institutions and investors to quantify and measure the physical risk of climate change and the transition risk to a low-carbon economy on their portfolios, using climate-adjusted security valuations and risk metrics.
According to BlackRock, the new platform will enable investors analyze climate risk and opportunities at the security level and measure the impact of policy changes, technology, and energy supply on specific investments.
Rob Goldstein, BlackRock’s Chief Operating Officer, said:
“There is no single issue that clients ask us more about than the impact of climate risk on their portfolio. Yet, while lots of people are talking about climate risk today, what investors need to make informed decisions is data tied to specific securities in their portfolio. Aladdin Climate is a dramatic step forward to begin filling the information gap necessary to build truly sustainable portfolios.”
BlackRock stated that Aladdin Climate will initially be available as an add-on for existing clients of the firm’s Aladdin portfolio management operating system platform, with asset class coverage rolled out gradually over the course of 2021.
BlackRock has become increasingly active on promoting sustainable investing practices and on ESG engagements with companies, particularly on the climate front. Early this year, BlackRock CEO Larry Fink sent a letter to company CEOs indicating the investment manager’s increased action on confronting climate change through its investment and engagement practices.
BlackRock has also advocated for greater transparency on sustainability issues, promoting the use of the Task Force on Climate-related Financial Disclosures (TCFD) framework and SASB standards by companies in their reporting. According to BlackRock, organizations are increasingly looking to report on climate risk, whether for mandatory stress tests or voluntary disclosures such as TCFD recommendations, but have lacked tools that quantify climate risk. The company stated that Aladdin Climate will help clients stress test investments to estimate how they might perform in different climate scenarios like those outlined in the Paris Agreement.
Mary-Catherine Lader, Head of Aladdin Sustainability at BlackRock, said:
“We are building on BlackRock’s strength in financial modeling and risk management to set a standard for climate risk analytics. Aladdin Climate analyzes climate risk alongside traditional risk metrics for a holistic view of risk across the investment process, all integrated in existing Aladdin workflows. Investors can now analyze tough questions about rising sea levels’ potential impact on their portfolios, or how a rapid shift to low-carbon policies could affect specific companies.”
Isn’t climate risk assessment above all a new risk model for financial products ? In a lot of articles, I have the impression that the ESG initiatives by Black Rock a misinterpreted. While knowing about a publicly known key event in Larry Fink’s early days, one knows that he is above all obsessed with risk assessment. Since their success, Aladdin has been the synonym for their “independent machine-learning tech oracle”. I understand Aladdin as a kind of privately owned unbiased algo-driven risk rating agency behind the curtain. Since climate change is now becoming more and more visible, related risk assessments are only coherent about what Blackrock is about. I see the current strategy of Blackrock mainly as climate mitigation for capital then Larry Fink saving the world. In addition, I don’t understand how their newly branded “Oracle”, namely Climate Aladdin by Blackrock could really know about all the hazards that come with climate change in a global context. Curious to see about the promised climate genie ….
There are two kinds of risk: traditional risk and uncertainty risk. Traditional risk has a focus on threats and the losses associated with the threats. Insurance may be involved to offset some part of the loss. Companies use “controls” to help manage the cost of insurance. Risk for organizations is defined as “the ‘effect of uncertainty on the ability of the organization to meet its objectives. This risk and the risk management associated with it drives the work in the IFRS Foundation describes in the Consultation Document. The effect of uncertainty consists of “opportunities” and “threats.” All of the management system standards issued by the International Organization for Standardization (ISO)l use this definition of risk. It differs from traditional risk (i.e. used for everything EXCEPT an organization) and replaces the investment term, “risk and opportunities.” For the ISO standards the definition (3.2.11 in ISO 14001:2015) “potential adverse effects (threats) and potential beneficial effects (opportunities)
Jeff, The international Organization for Standardization recently published ISO Guide 84 Climate Change. It looks at how standard setters have been looking at the various issues associated with climate change. It’s well worth the cost.