How does BlackRock’s Aladdin Assess Environmental and Social Sustainability Risks?
Aladdin is BlackRock's risk analysis software. Although large shares of global assets run through the software, little is known about it. This also applies to its handling of social and environmental risks.
Aladdin (Asset, Liability and Debt and Derivative Investment Network) is BlackRock’s risk and investment management software. It evaluates different assets and predicts their financial risks. It prepares market data and probes risks for investment plans, especially those of major clients. The assets analysed by Aladdin represent at least 10% of the world's traded stocks and bonds. Clients in Switzerland include Credit Suisse and UBS, as well as BlackRock itself. To find out how Aladdin handles environmental and social sustainability risks, it's worth looking at its approach to climate risks as well as BlackRock's own investment portfolio.
Aladdin, artificial intelligence and climate-concsious portfolios
In 2021, BlackRock acquired a minority investment in Clarity AI and integrated its technology into Aladdin. Clarity AI uses machine learning and artificial intelligence to calculate the social and environmental impact of investments, with the aim of "making markets more sustainable for both the environment and society" according to CEO Rebecca Minguela. The Aladdin Climate software is designed to help investors "track a portfolio’s trajectory towards net zero, and better identify climate risks and opportunities." a portfolio’s trajectory towards net zero%2C and better identify climate risks and opportunities) With that in mind, it's worth looking at BlackRock's portfolio itself and its investment in the coal and other greenhouse gas intensive industries. BlackRock is one of the three largest shareholders in the Swiss commodity trading and mining company Glencore, holding more than 9.2% in shares, alongside long time former CEO Ivan Glasenberg and Qatar Holding. Glencore is currently developing new coal mines in Australia. Other BlackRock investments are also of interest: BlackRock has a stake of over 6% in cement giant Holcim. Until June 2021, a similarly high stake was held in the oil and gas drilling company Transocean, which, like Glencore and Holcim, is also headquartered in the Canton of Zug, Switzerland. Back then, BlackRock sold nearly two-thirds of its investment in Transocean, shortly after it spoke negatively about the company's climate related reporting at Transocean’s annual general meeting.
What are the implications of Aladdin's assessments?
Do these holdings indicate that Aladdin perceives no or only insignificant climate-related financial risks when investing in companies such as Glencore or Holcim? What exactly are these assessments based on, and how do they in turn affect how UBS, Credit Suisse, or other Aladdin clients manage such risks?
Does protecting assets from climate-related financial risks automatically translate into climate protection under the framework of the Paris Climate Agreement? And what impact does Aladdin's risk assessment have on other social and environmental risks, such as exploitative labour practices or the erosion of biodiversity?