Europe’s Eminence Grise, BlackRock, Is Helping to Write Europe’s Sustainable Banking Rules. What Could Go Wrong?

Despite facing accusations of rampant greenwashing, BlackRock is once again in the driving seat of public policy in Europe. But its potential conflicts of interest are at least finally attracting a little attention. 

When things get serious in Europe and new financial rules, regulations or bailouts are needed, the first phone number to call is invariably that of BlackRock, the world’s largest asset manager. That is exactly what the European Commission did when it needed to create new environmental standards for Euro-Area banks: it called BlackRock’s Financial Markets Advisory (FMA) unit. Which means that at the same time that BlackRock is launching some of the world’s biggest environmental, social and governance (ESG) investing funds for its clients — many of the world’s passive investors — it is also helping to create the new ESG investing rules by which Europe’s biggest banks and energy companies, many of whose shares it manages, will have to operate.

Much like Goldman Sachs did in the noughties and to a certain extent continues to do today, BlackRock has spread its tentacles across Europe’s political landscape, by spending lavishly on lobbying efforts and snapping up well-connected retired politicians and central bank officials. They include the former Chairman of the Swiss National Bank’s governing board, Philipp Hildebrand, and former U.K. Treasury head George Osborne.

But the Commission’s latest decision to hire BlackRock has drawn disapproval from EU Ombudsman Emily O’Reilly. Green banking is an “area of financial and regulatory interest” to BlackRock, O’Reilly pointed out in a statement on Monday. And BlackRock’s paper on green banking rules “is meant to feed into policy that will regulate that company’s business interests.”

O’Reilly also recommended that the Commission strengthen its conflict of interest rules. That, as O’Reilly presumably knows, is not going to happen any time soon. In a response published on Monday, the Commission said it will “consider” proposing amendments to EU law to require companies and organisations to disclose conflicting interests when they bid for EU-funded contracts. It will also “consider” providing further guidance to assist staff dealing with public procurement. Emphasis, if you hadn’t noticed, on the word “consider”.

Katrin Ganswindt, a finance campaigner at Urgewald, had the following to say:

“It is good that the EU commission is considering providing clearer guidelines on possible conflict of interest. This should be a given. In the case of BlackRock, the world’s largest investor in fossil fuels, it is unfortunately already too late. The fact that the asset manager is also a leading shareholder in the banks for which it is advising environmental social and governance regulation, shows how we would have needed these guidelines before BlackRock was awarded the tender.”

BlackRock declined to comment on O’Reilly’s remarks. It had previously said its bid for the banking rules work was accepted because the commission found it offered the best quality for the lowest price. It also said it would ensure “physical segregation” of FMA to guarantee  information did not flow to other parts of its business, which is comforting to know.

Greenwashing the World, BlackRock-style

BlackRock has faced repeated criticism for not walking the walk on green issues. In January 2020, the company’s Chairman Larry Fink said it would put sustainability at the core of its investment process. He also averred that climate change could lead to a “fundamental reshaping of finance”. Yet months later, BlackRock refused to back resolutions calling for two big Australian oil companies, Woodside Energy and Santos, to set targets in line with the Paris agreement and to disclose their lobbying.

In January this year, it still held investments worth $85 billion in coal companies, including in companies planning to expand coal production such as Japan’s Sumitomo and Korea’s Kepco, a whole year after it promised to sell most of its shares in producers of the fossil fuel. It has also faced criticism for its investments in companies that are driving deforestation in the Amazon basin. The company has $408 million invested, via various funds, in Brazil’s top three meatpackers operating in the Amazon — JBS, Marfrig and Minerva — which rank first. fifth and tenth, respectively, on Imazon’s ranking of deforestation risk.

“BlackRock is the global leader in asset management, so its actions have significant effect on the entire sector,” says Moira Birss, director of climate and finance at Amazon Watch. “Yet it appears that the company hopes people don’t look closely at investment data and only look at the headlines, which look great.”

BlackRock is even facing allegations of greenwashing from within its own ranks. A month ago, BlackRock’s former CIO of sustainable investing, Tariq Fancy, penned a blistering op-ed in USA Today, titled “Financial world greenwashing the public with deadly distraction in sustainable investing practices”. In it Fancy denounced the financial services industry for duping investors when it comes to ESG.

“This multi-trillion dollar arena of socially conscious investing is being presented as something it’s not. In essence, Wall Street is greenwashing the economic system and, in the process, creating a deadly distraction. I should know; I was at the heart of it.”

Fancy served as chief investment officer of sustainable investing at BlackRock for almost two years, from January 2018 to September 2019. In his op-ed, Fancy claims that many mutual funds that get rebranded as “green” make no discernible change to their underlying strategies. The change in name or branding is all for the sake of virtue signaling, he says. Unfortunately, that virtue signaling appears to be more than enough to satisfy many policy makers, including the European Commission. As a result, the EU’s newfangled sustainability rules for banks are likely to have little in the way of actual substance. The biggest beneficiaries will probably be BlackRock itself and the companies whose shares it manages. 

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