April 14, 2021

BlackRock advises EU on environmental regulations for banks

BlackRock CEO Larry Fink on shifting investment strategy towards environmental sustainability

BlackRock advises EU on environmental regulations for banksBlackRock advises EU on environmental regulations for banks

BlackRock, one of the world’s largest investors in banks and fossil fuel companies, has been hired by the EU to work on new environmental regulations for banks.

Market participants raised concerns about potential conflicts of interest given BlackRock’s widespread financial interests in sectors that could be directly affected by the new environmental regulations.

The European Commission, the EU’s executive arm, said this week that BlackRock has bypassed eight other parties to the contract. EU hopes to best integrate environmental, social and governance (ESG) considerations into its banking supervision.

BlackRock is the world’s largest investment manager with $ 7.43 trillion in assets under management as of December 31 before the coronavirus pandemic caused the global market to plunge. Most of these assets are in products that track stock and bond indices, which means the company by default controls large stakes in many of the world’s largest companies..

InfluenceMap’s analysis for the Guardian found that BlackRock controlled $ 87.3 billion in fossil fuel companies in October, which controls 3.27 billion barrels of fossil fuel reserves. BlackRock is among the top three investors in the capital of the eight largest oil companies in the world, as well as among the top ten investors in 12 systemically important banks in the world.

Catherine Ganswindt, a climate and energy campaigner at a nonprofit for the environment and human rights in Urgewald, said: «BlackRock’s appointment as environmental, social and governance advisor to the European Commission is akin to letting the fox guard the chicken coop. In addition to being the world’s largest investor in fossil fuels, they are also among the world’s leading financiers in the arms industry..

«We are puzzled as to why the European Commission did not think there would be a massive conflict of interest with this choice.».

The European Commission will pay BlackRock Financial Markets Advisory (FMA) a research premium of € 550,000 per contract notice posted on the Commission’s website, which is just 2.2% of the $ 24M award paid to the CEO director of BlackRock Larry Finkou in 2018, or 0.012% of the company‘s operating profit of $ 4.5 billion in 2019.

However, the decisions of European banking regulators on ESG issues could have a significant financial impact on the companies in which BlackRock holds shares. For example, easing restrictions on bank lending to companies fueling the climate crisis could bring benefits to both oil companies and lenders..

BlackRock itself has been heavily criticized for blocking progress on environmental issues. The Guardian’s analysis of ProxyInsight data showed that BlackRock opposed or abstained from 82% of climate-related decisions in the companies it controlled from 2015 to 2019, far below many competitors..

However, in 2020, the company has taken significant steps to make sustainability a core part of its business. In January, the investment bank said it would divest companies that receive 25% or more of their coal revenues, and promised to start using its voting power to force companies to disclose climate risks..

The European Commission spokesman said that the contract was awarded «in full and strict compliance with applicable EU procurement rules, including with regard to the acceptability of tenderers and the prevention of any potential conflict of interest».

The spokesman added that the BlackRock tender was better than the competition, and it will be just one of the contributions to the formation of EU policy..

A BlackRock spokesperson said its FMA division functioned separately from its investment management division..

He said: «We are honored that BlackRock Financial Markets Advisory has been selected to conduct the analysis to inform the European Commission’s action plan for sustainable finance, leveraging our experience and capabilities to advise public sector clients on structural trends, including the transition to a low carbon future.».