How BlackRock is 'sprinting' to solve ESG's data dilemma, according to Aladdin's sustainability head

  • BlackRock is looking to provide a valuable resource for sustainable investors: data analytics that can help with regulatory disclosures.
  • Insider spoke with Mary-Catherine Lader, head of Aladdin’s sustainability efforts, about the growth of sustainable investments.
  • The firm recently invested in Clarity AI, a fintech startup that provides sustainability data and analytics tools.
  • Visit the Business section of Insider for more stories.

The investment community has praised and criticized BlackRock for its action to mitigate climate change. The New York firm and its vocal CEO, Larry Fink, is doing just the right thing or not nearly enough with its power as the world’s largest money manager to fight the threat of global warming and examine companies’ sustainability, depending on who you talk to.

What is certain, though, is that BlackRock is doubling down on a crucial piece of evaluating what makes investments sustainable at all: lots and lots of data, and the specialized analytics to make sense of it all. 

Last month, the firm said it was taking an undisclosed minority stake in Clarity AI, a fintech startup that provides sustainable investing analytics and software. BlackRock is integrating Clarity AI’s offerings into Aladdin, its gargantuan risk analytics and technology system, which is used by many large asset managers, pension funds, and other institutional investors.

That partnership was announced alongside BlackRock’s fourth-quarter results, where the firm said it was seeing record levels of interest in sustainability strategies from clients. During 2020, Morningstar tracked $51.1 billion in inflows to sustainable funds available to US investors, raking in double the amount from 2019 and a nearly tenfold increase from 2018. 

As demand for sustainable investing options rises, BlackRock’s latest investment in ESG tech is part of the firm’s wider approach in getting data analytics tools in investors’ hands, Mary-Catherine Lader, the head of Aladdin Sustainability, said in a recent phone interview.  

In December, BlackRock unveiled Aladdin Climate, software that aims to help investors decipher how their portfolio could be hurt by climate change and how it could contribute to climate change. 

Clarity AI, which specializes in ESG and climate data, adds to a handful of partnerships BlackRock has formed with data providers. This includes MSCI, Sustainalytics, and the Rhodium Group — which examines factors like the economic impact of rising sea levels and temperatures by specific geographic areas.

After BlackRock launched its focus on sustainable investments in early 2020, Lader said the firm found gaps in the market, particularly in climate analytics. This ultimately led to the development of Aladdin Climate, which Lader said will aid in the firm’s commitment to help elevate the quality of sustainability data — an ongoing challenge faced by the industry. 

“Sustainability data isn’t commoditized, it isn’t standardized, and there are still massive questions about what matters, and why, and how you measure it,” Lader said. 

The “credibility of sustainable investing relies on a strong foundation of data to understand what is sustainable,” said Lader, a managing director appointed to her newly created role last year as the firm pushed further into sustainability-focused technology and analytics.

“There are, increasingly, regulations that are calling on investors to disclose their climate risk and to run climate stress tests. Today there aren’t really data sets that are equipped to do that,” said Lader. 

Navigating the world of ESG data and disclosures is currently like searching for information before the internet. Much like Google, BlackRock’s Aladdin Climate seeks the first-mover advantage in uniting relevant sustainability data and analytics in one hub for investors. 

“This space is moving so fast that we are sprinting, and we’re going to keep sprinting,” Lader said. 

BlackRock’s ESG approach

BlackRock, which is the world’s largest asset manager with some $8.7 trillion in assets under management as of Dec. 31 and wields tremendous influence through its fund lineup and other businesses.

Early last year it said it would look to remove companies generating more than one-quarter of their revenues from thermal coal production from its discretionary, active portfolios by mid-2020, and that its alternatives business would stop making direct investments in such companies.

Some climate activists said those moves did not go far enough, since the same could not be said for assets BlackRock has invested through passively managed funds tracking indexes that include such companies. 

Still, the firm is pushing further into sustainability-centered businesses as flows into those products hit records.

In his annual letters to CEOs and clients last month, Fink said that climate change is an urgent investment matter, and called on companies to outline their commitments to eliminate net greenhouse gas emissions by 2050.

That included a call for private companies to disclose under Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) frameworks, and BlackRock is aiming to make the process of disclosing and viewing disclosures easier for investors and clients. 

“We’re trying to reduce the friction to disclosure and make it as easy as possible for clients to share how they’re doing in sustainability according to SASB and TCFD standards,” said Lader.

“Just as we do with other risks, on sustainability we want to be able to deliver data to our clients and allow them to understand how they are exposed to all environmental, social, governance, and other sustainability risks — and then give you the tools to act on that,” she said.

An industry looking to bridge the data gap

Clarity AI, founded four years ago by a former Santander executive, collects data on 30,000 companies around the world. It distributes that through tools made for investors looking to build values-based portfolios that also meet disclosure and regulatory obligations. 

Other money managers have looked to help investors build sustainable portfolios and measure that sustainability in different ways. The lack of consistency in what qualifies an investment as such has long frustrated investors, and led to skepticism about how effective impact-investing really is. 

Last month, custody banking giant BNY Mellon said it rolled out a new environmental, social, and corporate governance (ESG) tool aimed at trying to help investors build portfolios and conduct due diligence. 

“Sustainability regulation is complicated,” Lader said. “It took hundreds of years for accounting standards to develop, and we are collectively trying to agree on a new set of standards in the matter of years — where there’s a lot that remains to be defined.”

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