Jim Barry is Managing Director and Chief Investment Officer of BlackRock Alternatives Investors (BAI) and Global Head of BlackRock Real Assets. BAI manages over $195 billion in total assets and client commitments with a team of over 1000. As CIO, Mr. Barry is responsible for providing oversight and leadership to the alternative investment teams globally across the Real Estate, Infrastructure, Hedge Funds, Private Equity and Credit businesses. BlackRock Real Assets comprises BlackRock's Infrastructure and Real Estate businesses, which have c. 400 professionals across 27 cities globally.
Our conversation began with Jim’s reflection on the pace and nature of the change happening now after over 20 years of investing in ESG. He sees a “material shift in the last 2 to 3 years”. Jim explains that part of the reason for this is the increased frequency of extreme weather events in developed markets. This has shifted the overall policy context because as Mr. Barry pronounces “the reality has been brought home”. He describes hitting an inflection point in the last 18 months with the regulatory and policy environment around climate change. Jim’s perspective is that this is being driven by policy makers and politicians responding to “people prioritising climate for the first time”.
As an investor, Jim points out that this is critical to a new approach when it comes to understanding both opportunity and risk. He asserts that “the decarbonisation of our economic system is going to create huge opportunity. Not just for renewables but for the whole ecosystem as it relates to how we consume and absorb energy in all value chains. That is going to have a limitless set of investment opportunities for the investor today. Consequently, there is going to be associated risk where anything which has exposure to carbon is going to require change. As investors we must position ourselves for both the opportunities and the risks”. Jim explains his outlook in more detail by stating that “we still see 10 to 15 years of cash flows from carbon assets but the challenge is will you still be able to sell these assets in 10 years? and it is this point which is driving capital allocation. Corporates really run a very serious risk of becoming a stranded asset if they do not transition – if you have to sell something in 5 to 10 years which is carbon intensive you may be inclined to take an earlier view. The energy transition comes in different risk buckets and Blackrock has to think of it in these terms. In energy transition there is a huge amount of technology risk and you need capital which is right for the risk. You have to match the capital to the risk”.
Jim is not shy about highlighting the practical challenges of collaboration. He highlights that one of the inevitable challenges of securing climate agreements between so many countries is that policy design has adopted a lowest common denominator approach. Jim boldly explains that “executives need to change their mindset and not to confuse climate impact as being the start of a straight line”. He challenges leaders to accept that we are now past the tipping point and to expect exponential change. The key boardroom constraints, in Jim’s mind, will be different to traditional ways of thinking about capital and costs. According to Jim the way we all think about risk is going to change rapidly. Risk management is about to get more concentrated on technology and the fundamental capability of companies to change.