BlackRock CEO Larry Fink, one of Wall Street’s most vocal advocates for sustainable investing, said the transition to greener energy isn’t a straight line, and the past quarter’s lagging performance of environmental, social, and governance, or ESG, funds doesn’t change his long-term outlook for this approach.
“In all my letters, I said an energy transition isn’t a straight line. It’s a 30- to 50-year time frame for us to move that forward. It isn’t today. It isn’t tomorrow,” Fink said in the investment management firm’s first-quarter earnings call.
Fink, who heads the world’s largest asset manager, pointed to first-quarter inflows as evidence of continued interest in sustainable investing, often called ESG investing.
“We had about $19 billion of sustainable flows,” Fink said.” Obviously that is down from prior quarters, but certainly up from two years ago.”
The Russia-Ukraine war, which prompted a U.S. ban on Russian oil that has helped drive up inflation, has weighed on the performance of ESG funds. For the first quarter, large-cap stock funds in the U.S. have fallen an average of 5.6% on the asset-weighted basis, according to Morningstar. The ESG funds in the group suffered even more, tumbling 6.9% in the three months.
“In terms of a one quarter return on one product versus another, let me be clear, most investors aren’t doing this for a quarter or even a year,” Fink said. “These are long-term views on the movement toward more of a decarbonization future of the world and that doesn’t change anything now.”
Fink said rising energy prices were “very harmful for society” and governments were responding: “This is a really complex, difficult issue, but I don’t think it changes anything in the long term.”
He added that BlackRock is the largest investor for pension funds and retirements, and has “a long-term responsibility in making sure over the long run that our beneficiaries achieve their long-term aspirations and goals and so there is no question this energy transition is real, but it’s going to be not a straight line.”
Fink also said one of the biggest opportunities in alternatives in the years ahead would be the intersection of infrastructure and sustainability.
“The interconnectivity between sustainable investing in infrastructure is going to be enormous,” he said.
He noted that, in response to the energy crisis caused by the war, many countries are re-evaluating their energy dependencies and looking for new sources of energy. This may mean increasing production of traditional energy sources in the near term, but longer term, there will be a shift toward greener sources of energy, Fink said.
“We will see tremendous technological changes in the energy transition,” Fink said.” This presents a significant long-term opportunity for investments in infrastructure, renewable, clean tech on behalf of our clients.”
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