Singapore should step up to help emerging countries with net-zero transition, says BlackRock CEO

BLACKROCK chairman and chief executive Larry Fink has called on Singapore to play a pivotal role in helping to facilitate the path towards net-zero emissions, particularly for the emerging world where the impact of the transition will be painful and the need for capital is acute.

He believes Singapore could help facilitate financing for emerging countries. "Singapore has a great foundation of being a capital for finance in Asia; it needs to have a louder voice … Because it is on the equator, it is witnessing first-hand the extent of what climate change is doing to the equatorial part of the world.

"Singapore is an outlier in the emerging world. It's the most successful economy in the region, the most educated and advanced. So I think Singapore has a great responsibility to be part of this dialogue … It should have an outsized role in this conversation."

Mr Fink is a speaker at the Ecosperity Week 2021 three-day conference here, presented by Temasek. The conference starts today. BlackRock manages over US$9 trillion in assets.

In an interview with The Business Times, Mr Fink said the path to net-zero has to be carefully managed particularly in the developing world. "Many economies, especially in South-East Asia, are dependent on coal. So their pathway to net-zero is pretty difficult to comprehend. If not properly executed, the pathway will be highly disruptive and inflationary. It's going to require government planning which is in short supply, and an enormous amount of multilateralism, also in short supply."

It is estimated that the global energy transition could need as much as US$50 trillion in capital. "In so many parts of the emerging world, a pathway towards middle class and putting food on the table is a lot more urgent than the use of green energy. And so we have different needs."

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He believes that public and private sector partnership will be necessary to move the needle. "Public/private (partnership) is urgent. Governments will need to work with the private sector to design programmes in which a large proportion of the capital will be from the private sector. And we can then move forward with the creation of new opportunities, new jobs and new companies with both public and private money."

Earlier this year, BlackRock spearheaded the Climate Finance Partnership, which raised US$250 million in commitments from global institutional investors, governments and philanthropists. The partnership will create a blended finance vehicle to invest in climate infrastructure across emerging markets to help drive the global transition to a low-carbon economy.

BlackRock has also tied up with Temasek to establish Decarbonization Partners, which will launch a series of late-stage venture capital and early-growth private equity funds focused on decarbonization solutions. The partners aim to commit a combined US$600 million in initial capital to invest in multiple funds; they will also raise third-party capital. Decarbonization Partners has a fundraising target of US$1 billion for its first fund.

Mr Fink says there is a dearth of capital for developing countries. "The emerging world is losing global investors, not gaining. (It) is seen to be fraught with more risk, more political instability and flip-flopping of governments … It's very hard for me to see the trillions of dollars needed to help emerging countries move away from coal.

"We need to re-imagine the responsibilities and roles of the World Bank and the IMF (International Monetary Fund). They were designed 80 years ago on the foundation that banks provide the financing. But banks don't lend to emerging countries anymore. As we raise capital standards, banks have determined that (emerging countries) cannot meet the appropriate return on equity."

He emphasised that there is no shortage of capital for sustainability projects where the returns are potentially huge. "Let's be clear - the money is there. We're asked repeatedly: Where can we invest our money? I was with a large sovereign fund earlier this week, they want to put billions to work in sustainable projects, but there are just very few of them."

"I believe that in the next five to 10 years, the biggest unicorns in capital markets are going to be companies focused on green - not the new food delivery services or apps stores doing whatever."

There are challenges. One is that the "green premium" needs to be lowered in order for net-zero emissions to be achievable. This will need funding and a concerted effort from the scientific and tech communities. "We're doing the highly visible things but we're not moving the dial fast enough to get to net zero. We have to invest huge sums of money in new technologies. The green premium on things like biofuels is double that of hydrocarbons. To create green cement, green hydrogen and green steel, the green premium is anywhere from 40 per cent to three times greater."

The BlackRock Foundation has committed US$100 million to the Breakthrough Energy Catalyst Program. The programme's initial focus will be to help speed the development and commercialisation of four clean energy technologies: direct air capture, green hydrogen, sustainable aviation fuel and long-duration energy storage.

"We're seeding some new technologies - obviously some won't work. But the intention of Breakthrough Energy is not profit seeking. It's to rapidly do what governments are not doing, find new technologies and provide capital. Obviously, we hope governments will come in with us. We believe at BlackRock that there are going to be great opportunities to invest in, but to put it bluntly, we're running out of time if we're going to get to net-zero (by 2050). Many governments have set a target of 50 per cent reduction in carbon emissions by 2030. It's very hard for me to see that outcome."

Mr Fink says he is a short-term pessimist on the likelihood of achieving net-zero, but an optimist in the long run. He cited the rapid development of vaccines to combat Covid-19 as an example of what is possible. "We should think of climate risk as (posing) the same existential risk as Covid-19. If we get our minds focused on it, and we have multilateralism, we could solve the problems more rapidly."