The appointment of BlackRock to advise the European Commission (EC) on ESG banking regulations did not sufficiently consider conflicts of interest on the fund giant’s behalf, the European Ombudsman has ruled.
The Ombudsman’s decision is in response to a complaint filed by a group of MEPs and the Change Finance Coalition, alleging that BlackRock was incentivised to seek softer regulatory measures due to its significant exposure to the oil & gas companies and banks which stood to be most impacted by any future sustainable finance rules.
In her ruling, Ombudsman Emily O’Reilly found a “clear risk” that BlackRock’s interests “may influence the outcome of its work in its own favour” and suggested that the award was made as a result of BlackRock being able to offer a lower price compared to other bids.
While O’Reilly stopped short of concluding maladministration on behalf of the Commission, she said it “should have been more rigorous, and brought a wider perspective to bear”. O’Reilly suggested that the EC could update its procurement procedures to provide additional clarity on conflicts of interest.
The verdict will be embarrassing for Commission Vice-President Valdis Dombrovskis, who has sought to brush off the complaints, saying that “procurement awards should never be political decisions”. At the time, the EC said BlackRock had promised to “guard against conflict of interest”.
The decision has been celebrated by campaigners, who described the award of an ESG contract to BlackRock as akin to “asking a nuclear power company for advice on a nuclear phase-out”.
Commenting on the decision, Jane Leutner, a researcher at the Change Finance Coalition, said: “For us, a logical consequence should be for the Commission to cancel the contract with BlackRock. We further expect the Commission to act on [the Ombudsman’s] decision and strengthen its rules on conflicts of interest as well as its enforcement to make sure a case like this doesn’t happen again.
Rulings by the Ombudsman, which scrutinises EU bodies, are not legally binding, but the rate of compliance is “consistently high” according to its website. In the event of non-compliance, the Ombudsman can choose to escalate the matter to the European Parliament.
The ruling adds to concerns that BlackRock’s high-profile pivot towards ESG investing and climate change activism may be at odds with its longstanding investments in fossil fuels and deforestation, and its lobbying track record.
A report released today by the Corporate Europe Observatory and Change Finance claims that the asset manager is a key player in lobbying efforts to weaken EU green investment standards and is among the two largest shareholders of 12 of the EU banks most heavily invested in fossil fuels. BlackRock is also among the top three shareholders of the world’s 25 largest deforestation-risk companies.
RI first reported the award of the advisory contract to BlackRock in April. Under the terms, the asset manager will oversee a study on integrating ESG factors into EU banks' risk management processes and EU prudential supervision as part of the EU Action Plan on Sustainable Finance.
Yesterday, the American Economic Liberties Project – a think-tank that has been advising incoming US president, Joe Biden – concluded that BlackRock should be forced to spin off its influential technology platform Aladdin, to curb BlackRock's power on the markets.