Climate Investment: Challenges and Lessons from BlackRock

In a recent episode of the Energy Channel, we discussed the significant impact of two problematic investments in BlackRock's Global Renewable Power Fund III. The asset manager had to make a substantial write-down after failures in investments in Northvolt and SolarZero. This occurred despite the robust value of the fund, $4.8 billion, which saw its internal rate of return plummet due to the unsatisfactory performance of just two companies.

This fund represents the third in a series of BlackRock's flagship investments in energy transition, focusing on renewable energy and infrastructure. The fund's assets cover a variety of early-stage initiatives, including electric vehicle charging, renewable generation, and energy transmission and storage.

Climate Investment: Challenges and Lessons from BlackRock

The episode highlights some important issues for climate technology investment:

1. Reevaluation of Risk Models: The influence of just two companies in such a significant fund suggests that traditional risk models need to be revisited in the context of climate technology. The conventional diversification strategy doesn't apply as well, as companies tend to have similar outcomes based on technological advances or regulatory changes. Hidden correlations, which conventional models might not capture, are more prevalent than we might imagine.

2. Active vs. Passive Investment: The Northvolt case highlights that simply allocating capital in climate technology is not enough. Companies need investors who actively engage, bringing operational expertise along with capital. We are seeing a transition from passive to active investing, where deep sector knowledge becomes as essential as the financial investment itself.

3. Local Complexities: The situation with SolarZero, a major player in the New Zealand energy sector with a 50-year trajectory, indicates a broader challenge. The acquisition by BlackRock in 2022 shows that global funds, in their rush to enter new markets, may overlook local dynamics and regional complexities in their eagerness to invest in the renewable space.

As the sector matures, it is imperative to develop a new framework for resilient investment strategies that can better handle individual company failures while leveraging the overall growth in clean energy.

BlackRock's Global Impact

BlackRock, Inc. is an American multinational investment management corporation. Headquartered in New York, it is the largest asset manager and risk management operator and the largest shadow banking system in the world. Its shares are listed on the New York Stock Exchange.

Its largest shareholder, as of July 2015, is PNC Financial Services, with 23.6%. In the first quarter of 2022, it managed $9.57 trillion in assets. It offers a complete range of investment solutions and risk management on a global scale. The company provides investment solutions, risk management, and advisory services to institutional and retail investors worldwide. It represents over a thousand investment funds.

Its clients include governments, companies, foundations, and millions of individuals saving for retirement, children's education, and a better life.

Climate Investment: Challenges and Lessons from BlackRock