BlackRock Inc. is pressing companies worldwide to start planning for a net-zero economy, but the world's largest asset manager still has substantial investments in fossil fuel companies, including coal producers.

The number of fossil fuel investments that BlackRock holds declined steadily from the third quarter of 2019 through the third quarter of 2020, the most recent date when data on its investment portfolio is available. Over the same period, the market value of those investments fluctuated. At Sept. 30, 2020, the market value of BlackRock's coal investments was more than $12 billion and the value of its oil and gas investments was nearly $90 billion, according to S&P Global Market Intelligence data. Data for the firm's holdings at year-end 2020 will be reported later in February.

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BlackRock is stepping up its engagement with companies on climate change issues and incorporating climate impacts into more investment decisions. While BlackRock's holdings in oil, gas and coal companies dropped in recent quarters, activists say the asset manager needs to go further to address its climate impact.

"The science on climate change has been crystal clear for many years ... yet the world's largest asset manager, with remarkable resources, has only started taking tangible action in the last year," said Peter Uhlenbruch, head of investor standards at ShareAction, an investor activist group.

Sandy Boss, the global head of investment stewardship for BlackRock, said at a Bipartisan Policy Center event Feb. 9 that the asset manager is doing more to engage with companies on climate change issues.

"It's a very supportive discussion, but it is also a challenging discussion because we want to be with these companies for decades," Boss said. "We're increasingly seeing the sustainability and the climate change shift in investing really accelerate. We've all seen when capital markets move, they can move incredibly fast."

Uhlenbruch said BlackRock's climate announcements are just a start on the path to meaningful climate action. For example, in early 2020 BlackRock announced a policy excluding investments in coal — a policy that only applies to the firm's discretionary active investment portfolios. The coal exclusionary policy also only affected companies deriving 25% or more of their revenues from thermal coal, leaving the door open to miners who produce substantial amounts of coal but derive more revenue from other activities.

Uhlenbruch said he hopes BlackRock will broaden the scope of its fossil fuel policies and step up its ambitions to act on climate change.

"Surely you would expect a net-zero committed asset manager to also start drawing red lines across all their multi-trillion-dollar passive product offerings when the science is clear that there is no room for coal by 2030 to stay on a Paris-aligned pathway," Uhlenbruch said.

Kirsten Spalding, senior program director of the investor network at the sustainability-focused group Ceres, said Blackrock's latest moves could encourage customers to align their portfolios to meet global climate goals.

"That really helps the individual investors, the institutional investors who have their money with BlackRock," Spalding said. "It helps them make choices about what funds they're in, and it helps them assess risk. If you see that a whole portfolio is not on the right path, then you have to think about the risk to that portfolio."

The Institute for Energy Economics and Financial Analysis, or IEEFA, tracks formal coal exit policies from globally significant financial institutions, and momentum is building. BlackRock's January 2020 letter from CEO Larry Fink signaling increased activities on climate change sent a "key shot across the bow of the global finance sector," said Tim Buckley, director of Australasia energy finance studies at IEEFA.

Fossil fuels make up a small portion of BlackRock's overall portfolio. Using market values as of Feb. 11, oil and gas represented 2.55% of BlackRock's total investments, and coal and consumable fuels made up 0.36% of the total.

Investors' rising interest in environmental, social and governance activities is putting increasing pressure on financial entities to act, Buckley said.

"Doing the morally right thing is financially sensible," Buckley said. "That doesn't mean BlackRock has newly found morality — not at all. They just are really focused on maximizing their own wealth."

Fink said at a Feb. 2 Brookings Institution event that designing custom portfolios with sustainability attributes will accelerate a "real tectonic shift in finance." He said that customization would allow asset managers to create portfolios that track indexes but exclude specific stocks. However, before that can happen, Fink said there needs to be more consistent disclosure of companies' sustainability efforts and climate risks.

Once BlackRock moves to start filtering its passive investments based on climate risk metrics, other asset managers are likely to follow, Buckley said.

"The lead sheep has moved, the pack is shuffling, and very shortly, the herd will stampede," Buckley said. "That will be game over for any high emissions dinosaur who forgot to prepare a transition plan."

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