The EU has been reprimanded for appointing the world’s largest investor in fossil fuels to advise on how to make banks more sustainable.
Giant US fund manager BlackRock was awarded a €280,000 contract in March to assess how to integrate environmental, social and governance (ESG) principles into EU banking rules.
On Wednesday, the European Ombudsman said the EU’s executive arm had failed to properly consider BlackRock’s potential conflicts of interest.
As well as stakes in fossil fuel companies, BlackRock’s $7.4 trillion of assets include significant holdings in European banks.
According to Corporate Europe Observatory, a non-profit group that tracks lobbying in the EU, BlackRock owns the largest or second-largest stake in 12 of Europe’s 15 biggest banks.
Ombudsman Emily O’Reilly found that EU regulation would impact BlackRock’s business and that “there is a clear risk that those interests may influence the outcome of its work in its own favour”.
The asset manager had “optimised its chances of getting the contract by making an exceptionally low financial offer, which could be perceived as an attempt to assert influence over an investment area of relevance to its clients,” Ms O’Reilly wrote.
“Questions should have been asked about motivation, pricing strategy and whether internal measures taken by the company to prevent conflicts of interest were really adequate.”
BlackRock is the world’s largest asset manager, investing the savings of millions of people. Most of its funds are so-called passive meaning that they buy a broad range of shares — typically tracking an index such as a stock market — rather than employing a manager who attempts to beat the market by picking the best stocks.
This low-cost approach has helped BlackRock grow rapidly and also means it holds stakes in all large, listed companies. Because oil and gas firms and banks make up a disproportionate share of the main stock market indices, BlackRock has large stakes in them.
BlackRock’s chief executive Larry Fink pledged in January to improve the company’s green credentials but environmental groups have demanded faster progress.
The EU said it would launch an investigation into BlackRock’s appointment in July after MEPs and campaigners reacted angrily to the contract award.
Following the ombudsman’s ruling, the Change Finance coalition called for BlackRock’s contract to be terminated.
“By choosing BlackRock, the Commission basically handed Big Finance the steering wheel for the implementation phase of its action plan on sustainable finance,” said Kenneth Haar, researcher and campaigner at Corporate Europe Observatory, a member of Change Finance
“If the contract with BlackRock is not withdrawn, that means the final nail in the coffin of a true Green Deal that is aligned with the climate ambitions of the Paris Agreement.”
A BlackRock spokesperson said: “The European commission has already publicly stated that the technical quality of [BlackRock]’s proposal was the basis for their decision in awarding the mandate.
[BlackRock] has taken a wide-ranging and inclusive approach, including academia, civil society, banks, supervisors and market practitioners, and looks forward to completing its work and delivering its final report to the commission.”