Because of its size and reach, any shift in focus by BlackRock by putting climate change and sustainability at the center of its investing approach, could alter the industry.

It is a major shareholder in thousands of companies through its popular exchange-traded funds that track various indexes, as well as its funds run by stock-picking managers.

But Danielle Fugere, president of shareholder-advocacy group As You Sow, said Tuesday’s announcement by BlackRock Chief Executive Larry Fink, is only a first step.

“The words are significant, and the words show leadership,” Fugere said. “But that’s not enough. We have to see on the ground action, and we need to see it quickly. There is no time. Australia is burning up. California is burning up.”

The wildfires in parts of Australia and California and other recent disasters have shown big institutional investors that climate change is just as much a threat to their returns in the near term as over the coming decades.

“The physical risks have become so immediately clear and stark,” said Amy Borrus, deputy director of the Council for Institutional Investors, whose members include pension funds, endowments and other U.S.-based asset owners investing more than US$4 trillion.

“Many institutional investors will welcome these steps by BlackRock,” she said. “More and more public funds are coming around to the view that sound environmental, social and governance practices are not just about making the world better but about fundamentally creating and preserving shareholder value.”

This approach to investing comes after a years long evolution for the industry, which began with simple funds that bluntly excluded stocks deemed as harmful, such as gun makers or tobacco stocks.

Now, fund managers say they they look at environmental, social and governance issues broadly as part of their analysis of any investment. It’s known as “ESG” investing, and proponents say it aids investors’ returns, not just their consciences, because it helps them avoid risky stocks and big potential losses. Companies with poor records on environmental issues are more likely to face big fines, for example.-AP

BlackRock stance on climate set to change finance