BlackRock, the world’s largest asset manager, on Thursday announced the acquisition of a London-based consultancy’s climate modeling system.
And after: BlackRock plans to integrate the model into its proprietary tools to help clients reduce exposure to climate risk in their portfolios.
Why is this important: Its purchase of the climate change scenario model from Baringa Partners is part of a larger climate modeling war.
- Asset managers and investment firms turn to internal or external teams to assess their risk of climate impacts, such as sea level rise.
- In addition, companies such as BlackRock want to help their customers benefit from the transition to a clean energy economy, for which Baringa’s model is designed.
Driving the news: BlackRock already has a set of tools called Aladdin Climate to assess climate risks and opportunities as the company ramps up its sustainability efforts.
- He intends to combine Baringa’s model with Aladdin to create broader, more precise tools and metrics for investment managers to minimize risk exposure.
- The model would provide BlackRock with a new ability to analyze the risks of a transition to a net-zero carbon economy, which many major nations, including the United States, hope to achieve by 2050.
- This could include, for example, the financial ramifications of oil and gas assets that can no longer be burned due to new greenhouse gas emission limits.
The big picture: The announcement comes as US financial regulators move towards requiring companies to disclose their exposure to climate risk, and as consultancy firms emerge and offer their own models.
- BlackRock has sought to make its modeling more accurate by recently partnering with or channeling data from Rhodium Group, Sustainalytics, Refinitiv and Clarity AI, a spokesperson said.
Between the lines: The new acquisition increases the chance that an ecosystem will develop in which more companies integrate climate models into their financial planning systems, but without fully revealing what lies under their hood.
- Earlier this week, scientists from the Woodwell Climate Research Center warned the Securities and Exchange Commission against promoting the development of such a risk modeling ecosystem, arguing instead for more transparency.
- The methods and assumptions of private sector models are often hidden from investors and the public, something the scientists warned the SEC about as part of their likely rulemaking process.
Our thought bubble: Simply because of its size and the wide use of its Aladdin platform, BlackRock’s investment in Baringa’s modeling vaults puts this system at the top of the list of tools widely used to help investors manage the transition to a low-carbon future.
Go further: Leading investors are stepping into the climate risk space