Larry Fink fears for energy transition, warns of market arbitrage
LONDON — Larry Fink, chair and CEO of BlackRockAccording to, the energy transition to greener power must be completely rethought.
Fink was speaking at the Green Horizon Summit that CNBC’s Julianna Tabelbaum hosted during the COP26 Climate Conference in Glasgow, Scotland. Fink praised companies for increasing emissions reporting, while criticizing oil firms for selling part of their businesses off to private investors. Fink also said this could lead to huge market arbitrage.
“We cannot ask public companies just to do their jobs without the support of the whole society. This will create capital market arbitrage at its greatest. More hydrocarbons are being sold to private companies than at any other time in recent years. This doesn’t make the world any better. It actually makes it, the world even worse, because it moves from public disclosed companies to opaque private enterprises. He stated that the mission was failing “if you do this all.”
Arbitrage is a market failure that allows investors and companies to make a profit.
Oil companies are selling some of their most polluting assets, which creates a more green narrative for shareholders. Fink explained that those assets exist and are more opaque in private hands. Fink stated, “That’s not going to change to a net zero world. “That’s just window dressing. That’s greenwashing.” he said.
Fink suggested that one solution is to make new financial vehicles to spin off oil assets. An energy company would then commit all proceeds to the purchase of green technology. We need these vehicles just like the ones we created during. [the]Financial crisis with banks: We need to create new tools, new thinking processes,” he stated.
Fink stated that BlackRock, which is the largest money manager in the world, “works with them, and not against them” when it comes to its relationships with oil companies. The key for hydrocarbon companies is to move rapidly towards a less carbon-intensive business model. They are, however, the most important source of energy in a society still dependent on it.
Fink stated, “We have to rethink how we could quickly deploy new capital into greening the world but not avoid hydrocarbons for the short term or we’ll have $120 and $140 oil. This is not a fair transition.”
Fink stated that “emerging countries won’t be able to afford green energy” and warned them. We need to have a just and fair transition. He warned that if we don’t get a fair transition, we will create more polarization and political uncertainty in the world.
The World Bank and International Monetary Fund will need to be revamped, according to him. This would ensure sufficient money is available for developing countries in order to address climate change. He stated that if we want to increase the capital going to the developing world it is currently only $150 billion. All estimates suggest that this figure will need to rise to $1 trillion per year over the next thirty years in order to move the entire world, including the emerging ones, to a more sustainable platform.
He said, “I am urging those who own these institutions, equity owners and that is all the major nations of the world, to concentrate on how we can reimagine them.”
BlackRock announced that it raised $673 Million for climate-focused infrastructure funds for emerging markets projects. per a Reuters reportTuesday. Japan, France and Germany have backed the Climate Finance Partnership.
BlackRock was targeting $500 million in investment. The fund was therefore oversubscribed Fink said at the COP26 conference. Fink stated that there was more money available and the fund is a good example of how to leverage public capital.