MEPs demand answers after Blackrock arm wins EU banking regulation role

A group of MEPs has demanded explanations after the EU selected asset manager BlackRock, a major investor in oil companies and banks, to advise on the incorporation of environmental and social factors into European banking regulations.

The commission announced BlackRock’s role in a filing on 8 April.

The mandate states that BlackRock’s Financial Markets Advisory (FMA) arm will advise the European Union on how it can use environmental, social and governance-related (ESG) factors in the prudential supervision and regulatory risk analyses.

BlackRock is reported to have beaten eight other unnamed bidders to the contract for the study, for which the commission will pay €280,000. The European Commission has said BlackRock’s proposal was the most competitive proposal "both technically and financially."

But the decision has drawn condemnation from over 30 members of the European Parliament (MEPs), who outlined several concerns over conflicts of interest in a joint letter to the commission on 17 April. 

BlackRock is one of the three largest investors in each of the world’s eight largest oil companies, and one of the 10 largest investors in the 12 most systemically important global banks, which the MEPs highlighted as an ethical concern.

“Decisions made by European banking regulators on ESG issues could have significant financial effects on the companies that BlackRock funds are invested in,” explained the letter, which was written by France’s Damien Carême, a member of the Green Party.

“Blackrock may obviously seek to protect the industrial sector in which it invests heavily by influencing the decision-making in favour of softer environmental rules,” it continued.

In an email dated 24 April, Carême told GBRR that the MEPs are still waiting for a response from the European Commission. “I hope that, considering the seriousness of the conflict of interest at stake, the commission will reply to us within a week,” he said.

A commission spokesperson said in a statement that Blackrock's study will be "one of the many reports and consultations" that will inform the Commission’s policy on sustainable finance.

BlackRock established its FMA arm during the financial crisis in 2008 and has advised governments, central banks, and financial institutions. Its services include sustainability and climate risk advisory as well as capital markets and transaction support. Global head Charles Hatami oversees the 225-strong operation.

Addressing the concerns laid out in the letter, a spokesperson for BlackRock reaffirmed to GBRR in an email statement that its FMA arm is a distinct business within the firm. “It has established policies and procedures to safeguard the sensitive nature of our client information, and operates behind a stringent information barrier,” they said.

The spokesperson also reaffirmed that since its inception, the FMA’s information barriers have been reviewed and audited by some of the world’s largest and most sophisticated official institutions.

“BlackRock is strongly supportive of the Commission’s overall aims of integrating sustainability firmly in the financial system. As such, we are honoured that FMA has been selected to perform an analysis to inform the European Commission’s action plan for sustainable finance,” the statement concluded.

The European Commission did not respond to GBRR’s request for comment.

The commission adopted an action plan for sustainable finance in March 2018 as part of a strategy to integrate ESG considerations into its financial policy framework.

Daniel Nevzat, of Norton Rose Fulbright’s government relations and public policy practice in London, says that treating ESG issues as financial risks will likely be incorporated into prudential framework in the UK, with the Capital Requirements Regulation being one area.

“The Prudential Regulation Authority already expects banks to take these factors into account - it is no longer an ethical issue financial entities can choose whether or not to consider,” says Nevzat.

Speaking on condition of anonymity, a lawyer at London-based firm tells GBRR clients need to accept this new reality.

“The impression I have is that if banks don’t begin to take these ESG issues seriously, there is potential for a full range of supervisory tools to be used, including enforcement actions,” they say. “I expect further regulatory change, there could be lots of binding law to force companies to implement this into their operations.”

Nevzat says that the ESG framework has focused heavily on climate change risk, while social aspects have been somewhat overlooked. “The coronavirus crisis will likely bring other social issues to fore – unemployment is the obvious one at the moment,” he tells GBRR.

The three European Supervisory Authorities (EBA, EIOPA and ESMA) published a consultation paper on 23 April, which seeks input on proposed ESG disclosure standards for financial market participants, advisers and products.

The newly proposed standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR), which intends to increase protection for end-investors.

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