BlackRock has introduced a software application to help financial institutions and investors quantify climate risk in their portfolios. The need for such a risk management tool becomes all the more urgent as the physical toll of climate change mounts and the global transition to net zero emissions accelerates, the company says.
Aladdin Climate, part of BlackRock's Aladdin risk management platform, allows investors to analyze climate risk and opportunities at the security level and measure the impact of policy changes, technology, and energy supply on specific investments. The app is initially available as an add-on for existing Aladdin clients globally with asset class coverage rolled out gradually over the course of 2021.
“There is no single issue that clients ask us more about than the impact of climate risk on their portfolio,” says BlackRock chief operating officer Rob Goldstein. “Yet, while lots of people are talking about climate risk today, what investors need to make informed decisions is data tied to specific securities in their portfolio. Aladdin Climate is a dramatic step forward to begin filling the information gap necessary to build truly sustainable portfolios.”
Investors have long highlighted the need for improved environmental, social and governance (ESG) data to increase sustainable investing strategies. Now, the dramatic growth in relevant corporate disclosures and unstructured data has created unprecedented opportunities to enhance climate analytics, BlackRock notes. Today, more than 85% of S&P 500 companies disclose ESG data, compared to 20% ten years ago, while Sustainability Accounting Standards Board’s (SASB) disclosures have increased 288% since January.
More and more organizations seek to report on climate risk, whether for mandatory stress tests or voluntary disclosures such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, but have lacked tools that quantify climate risk. Aladdin Climate will help clients stress-test investments to estimate how they might perform in different climate scenarios like those outlined in the Paris Agreement, BlackRock says.
“We are building on BlackRock’s strength in financial modelling and risk management to set a standard for climate risk analytics,” says Mary-Catherine Lader, head of Aladdin Sustainability at BlackRock. “Aladdin Climate analyzes climate risk alongside traditional risk metrics for a holistic view of risk across the investment process, all integrated in existing Aladdin workflows. Investors can now analyze tough questions about rising sea levels’ potential impact on their portfolios, or how a rapid shift to low-carbon policies could affect specific companies.”
BlackRock has also expanded access to ESG data through new partnerships with data providers Sustainalytics and Refinitiv. Aladdin offers over 1,200 key performance indicators to help portfolio and risk managers identify sustainability-related risks in their exposures and make informed asset allocation decisions.