ICYMI @blackrock shook the finance world w/a big new climate announcement that largely ignored the Passives Problem. @sunriseoz wrote a paper to shed light on the biggest climate finance problem no one is talking about 🧵sunriseproject.org.au/wp-content/upl…
@blackrock @sunriseoz First thing you need to know. Passive index investing has grown dramatically over the past decade overtaking actively managed funds for the first time last year. A trend that has accelerated markedly since the last financial crisis 
@blackrock @sunriseoz Put simply, this trend is putting the economy on autopilot ensuring fossil fuels a steady stream of capital & influence at exactly the time we need to actively manage a transition away from a climate cliff. But it's even more complicated & insidious. Here’s our 4 part definition
@blackrock @sunriseoz 1) Passive investing can artificially raise valuations of carbon-intensive companies: Despite market underperformance it creates an ‘index effect’ allowing fossil co's to maintain artificially high valuations creating a negative feedback loop & continued climate change
@blackrock @sunriseoz Indeed, coal oil and gas companies know this. Canadian oil and gas producers are purposefully listing on NYSE to take advantage of ‘passive pools of capital’ read ‘dumb climate wrecking money’ bloomberg.com/news/articles/…
@blackrock @sunriseoz 2) Passive investing blunts asset owner (AO) pressure for change: The trend has rearranged power in the system away from the AO towards the asset manager. Actors who have inherent conflicts of interest that distort incentives to avoid climate chaos papers.ssrn.com/sol3/Papers.cf…
@blackrock @sunriseoz 3) Passive investing limits shareholder action on climate: AM’s are also increasingly powerful. The Big Three asset managers collectively vote on average 25 percent of the shares of S&P 500 companies and use that power to vote against climate action majorityaction.us/asset-manager-…
@blackrock @sunriseoz 4) Passive investing increases systemic financial risk from climate change: As active investment exits the fossil industry, passive investors become the “holders of last resort” ensuring losses will be borne overwhelmingly by average investors & retirees papers.ssrn.com/sol3/papers.cf…
@blackrock @sunriseoz This is particularly pernicious. Think sub prime crisis on steroids. It's partly why warnings of a minsky moment continue to mount. Passive investing leaves investors 'powerless' to affect change because they're supposed to buy and hold the whole market through up's and downs...
@blackrock @sunriseoz This all creates a toxic, broken market place where all major actors blame each other for inaction while the world burns. These companies themselves are unlikely to solve it, and we will need regulation that addresses this systemic risk to the financial system
@blackrock @sunriseoz So what can be done? A lot. We see 8 areas where solutions exist. But we’re most focused on switching the defaults. If people are forced to opt-out of fossil fuel free funds then adoption rates will skyrocket. We know this from organ donation programs
@blackrock @sunriseoz But that leaves the immense power AM’s wield to solve for. That’s why the Big 3 @Vanguard_Group @blackrock @StateStreet need to change their approach to engagement & become “forceful stewards” acting on resolutions, board of director challenges, & if companies fail divestment
@blackrock @sunriseoz @Vanguard_Group @StateStreet Who is getting this right? On switching defaults @CreditAgricole is the leader. They are phasing out all coal & own Amundi Europe’s largest asset manager giving lie to the claims from @blackrock that they ‘can’t' screen their passive funds amisdelaterre.org/IMG/pdf/report…
@blackrock @sunriseoz @Vanguard_Group @StateStreet @CreditAgricole And who is leading the charge to drive new solutions to the passives problem? @Hewlett_Found @WaiteMarilyn released an RFP to tackle the problem. Check it out, apply, and help us get our hands back on the wheel before we drive over this climate cliff hewlett.org/environment-pr…
