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Months Before BlackRock’s Climate Vow, It Warned About Utilities

Gerson Freitas Jr. and Natalia Kniazhevich

(Bloomberg) -- For a look at how utility stocks will fare as part of BlackRock Inc.’s new climate strategy, consider a report that the world’s biggest fund manager issued just nine months ago.

In an April study, BlackRock warned that extreme weather events -- ranging from wildfires to hurricanes to floods -- haven’t been adequately priced into the value of utility stocks. It dedicated an entire section to the issue based on an analysis of 8,000 power plants scattered across the U.S.

“Climate-related risks are real for utilities,” the $7 trillion asset manager wrote in the report. “This is most relevant for long-term investors, as the probability of experiencing more frequent and intense extreme weather rises the longer a position is held.”

BlackRock’s take on the sector carries weight. It’s one of the biggest shareholders in more than a dozen major U.S. utilities, including Duke Energy Corp., Southern Co., Dominion Energy Inc. and American Electric Power Co.

Many of those stakes are held through funds that passively track market indexes and won’t be immediately affected by the company’s push to reduce the environmental, social and governance risks of its active investments. But the fund manager is pledging to create sustainable versions of its flagship index funds, excluding businesses with high ESG exposure. And that could eventually take a toll on utilities.

In its analysis last year, BlackRock referenced a handful of utilities, including PG&E Corp. -- which went bankrupt last year amid crippling wildfire liabilities -- and Duke -- which runs a system that has been battered by hurricanes. The S&P 500 utilities index was down 0.2% at 1:30 p.m. New York time.

“Over time, we expect these sustainability-focused models to become the flagships themselves,” BlackRock said.

To contact the reporters on this story: Gerson Freitas Jr. in New York at gfreitasjr@bloomberg.net;Natalia Kniazhevich in New York at nkniazhevic2@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan

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