BlackRock leads the pack on climate transition: Morningstar

Asset manager revealed as 'incontestable leader' in key ESG factor.

BlackRock Inc. has emerged as the clear leader in a fast-growing corner of ESG: climate transition.

Transition strategies entail investing in companies deemed instrumental in shifting toward a low-carbon economy. Last year, funds offering the strategy grew 25% to almost $210 billion, according to data provided by Morningstar Inc. And no asset manager drew as much investor cash to transition funds as BlackRock, the data show.

“BlackRock is the incontestable leader,” said Hortense Bioy, global director of sustainability research at Morningstar. “It dominates the ESG fund landscape globally, in large part due to its passive fund range. And the climate investing space is no exception.”

It’s the latest sign that BlackRock is finding a way to navigate Republican-led attacks on firms using environmental, social and governance strategies. Larry Fink, BlackRock’s chief executive, has declared the label ESG too “weaponized” to use. Instead, the three letters increasingly get replaced by other fund identifiers such as climate, green and transition, which are all sub-categories of ESG.

Across the asset-management industry, the five best-selling climate funds in 2023 in Europe were transition strategies, four of which are BlackRock products. In all, the BlackRock funds drew in $13.9 billion in net flows, according to Morningstar’s data.

A spokesperson for BlackRock referred to Fink’s recent public comments on climate investing.

In this year’s annual chairman’s letter, Fink wrote that the energy transition is “a major economic trend being driven by nations representing 90% of the world’s GDP.” It’s created “a ripple effect in the markets,” with both risks and opportunities for investors, he said.

Europe still towers over the rest of the world when it comes to investing in climate strategies, accounting for 84% of such assets last year. But there’s increasing interest in America.

“US investors are warming up to the idea that investing with a climate lens doesn’t only mean investing in renewable energy,” Bioy said. There is a growing array of strategies that allow investors to decarbonize their portfolios and invest in companies that should perform better in a low-carbon world, she said.

Overall, transition strategies have been attracting new money as other ESG funds shrink. Clean energy and clean tech funds, for example, saw a 23% decline last year, the data show.

Meanwhile, assets in US transition funds alone gained 133%, rising to $8.8 billion. That compares with an increase of just 0.6% in the US climate fund market, Morningstar said.

Bioy said it’s likely that investment in transition strategies will continue to expand. That’s as investors intensify their scrutiny of companies’ transition plans and demand better management of climate risks, she said.

Passive funds tracking indexes that comply with European rules for climate transition and Paris-aligned benchmarks also showed meaningful growth last year, reaching $155 billion in assets, up 50% from 2022, Morningstar said. Actively managed transition funds, meanwhile, saw the smallest inflows of client money.

Investor demand for transition strategies helped erase redemptions in other climate strategies to push flows into climate funds to $40 billion globally in 2023, Morningstar said. Climate accounted for more than half the $75 billion that flowed into the overall fund universe last year.