* World's biggest investment manager to reallocate capital
* CEO Fink's move follows activist pressure
* Activists hail "major step," call on others to follow
* BlackRock to cut firms that make over 25% of revenue from coal (Adds details on proxy voting, portfolio holdings, dateline)
By Sinead Cruise, Lawrence White and Ross Kerber
LONDON/BOSTON, Jan 14 (Reuters) - BlackRock Chief Executive Larry Fink warned company boards to step up efforts to tackle climate change, a significant shift by the world's biggest investment manager, which has faced mounting concerns about its role as a major fossil fuel investor.
In his annual letter to CEOs posted on the company's website on Tuesday, Fink forecast a "fundamental reshaping of finance" and said companies must act or face anger from investors over how unsustainable business practices might curb their future wealth.
Fink also said BlackRock would "be increasingly disposed" to cast critical proxy votes tied to sustainability, and said in a separate letter to clients that the New York-based firm will by mid-2020 sell off from its actively managed client portfolios stakes in companies that derive more than 25% of their revenues from thermal coal production.
Climate activists hailed Fink's revamped stances, though some cautioned the asset manager must still back up its new rhetoric.
"As the biggest financial institution in the world, BlackRock’s announcement today is a major step in the right direction and a testament to the power of public pressure calling for climate action," said Ben Cushing of the U.S.-based environmental group Sierra Club, in an emailed statement.
A shift in global investing trends has sent trillions of dollars into passive funds run by investment managers such as BlackRock and rivals Vanguard Group and State Street Corp, and bringing all three powerful new leverage on top corporations.
Diana Best, senior strategist for the Sunrise Project, which has pressed BlackRock to escalate pressure on fossil fuel companies or to divest from them, said BlackRock's steps are "a fantastic start and instantly raises the bar for competitors such as Vanguard and State Street Global Advisors."
Vanguard and State Street did not immediately respond to requests for comment. All three companies count clients with a wide range of political views and have been careful to represent their actions in terms of investment strategy rather than politics.
A Reuters analysis in October found the top index fund managers rarely challenge company management and have largely opposed climate change proposals. In 2018 and 2019 BlackRock and Vanguard only backed around 10% of climate-related shareholder resolutions.
Historically BlackRock has said it lobbies corporate executives behind the scenes, an approach that critics said undercuts other climate efforts.
At Exxon Mobil's annual meeting on May 29, for instance, BlackRock backed all but one of 10 directors up for election and opposed all but one of seven shareholder proposals, disclosures show.
Investors have begun to put their money into more climate-friendly funds, albeit the overall size of the action is still small. Investments in exchange traded sustainable funds grew to $20 billion in 2019, according to data from Morningstar, nearly four times the previous year's record.
BlackRock did not give specific details on which companies it would divest from or the size of those positions. Historically even top U.S. coal producers make up just a small fraction of BlackRock's active fund holdings.
For instance as of May 31 the $861 million BlackRock Advantage Small Cap Core Fund owned 29,965 shares of Arch Coal worth $2.64 million.
Banks also have faced pressure to trim fossil fuel financing. Last week a group of institutional investors in Barclays filed a resolution calling for it to stop financing firms not aligned with the Paris climate agreement.
Jeanne Martin, campaign manager at ShareAction, one of the groups involved with the effort at Barclays, said BlackRock should give more specific details about its voting.
"If BlackRock is serious about its commitment to phase out thermal coal, it should use its voting rights to get major coal financiers to do the same," Martin said.
Reporting By Sinead Cruise and Lawrence White in London, and by Ross Kerber and Tim McLaughlin in Boston; editing by Iain Withers/Mark Potter/Emelia Sithole-Matarise/Jane Merriman