EU Investigates Hiring of BlackRock as ESG Advisors

The European Commission recently announced the hiring of BlackRock (BLK.N), the world’s largest asset manager, to advise it on the implementation of new environmentally friendly rules for banks. The EU’s decision has triggered an investigation by the European Ombudsman following complaints of malpractice by several lawmakers and a civil group.

Under the terms of its contract, BlackRock’s Financial Markets Advisory would develop mechanisms to integrate environmental, social, and governance (ESG) factors into the EU banking framework, as well as within banks’ business strategies and investment policies. Following the announcement, the Change Finance coalition teamed up with 91 civil society bodies to urge the EU executive to annul the 280,000-euro ($315,868) contract over potential conflicts of interest.

The EU watchdog will inspect the Commission’s files to clarify certain matters with its officials. “The study that BlackRock will produce as an external contractor for the Commission will only be one of the many reports and consultations that will inform the Commission’s policy on sustainable finance,” said Commission spokesman Daniel Ferrie. Investigators are concerned about whether measures proposed by the company will prevent conflicts of interest and whether the Commission has the means to monitor the efficacy of the measures.

The Commission asserts that it followed EU procurement rules in handing out the contract, but has agreed to cooperate with the Ombudsman’s investigation. In response, BlackRock said, “FMA is a distinct business within BlackRock, with established policies and procedures to safeguard the sensitive nature of our client information, and operates behind a stringent information barrier.” While the ombudsman’s suggestions are non-binding, it is in the interests of EU institutions to follow them.