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16th Oct 2021

Watchdog slams Commission on BlackRock 'green rules' deal

  • BlackRock controls nearly €6 trillion in assets, with over €73bn in fossil fuel companies (Photo: Peg Hunter)

The European Ombudsman has concluded that the European Commission did not adequately assess potential conflict of interests when it granted a contract to the US investment giant BlackRock to work on environmental rules for banks.

Earlier this year, Emily O'Reilly, the ombudsman, opened an inquiry into how the commission evaluated the firm's bid, following separate complaints by several MEPs and the civil society network Change Finance.

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The complaint argued that BlackRock may seek to influence policy-making to favour its own business, since the company is one of the world's largest investors in banks and fossil fuel companies. BlackRock controls nearly €6 trillion in assets of which over €73.5bn are in fossil-fuel companies.

Under the contract awarded in March, BlackRock was responsible for conducting an in-depth study on integrating environmental, social and governance objectives into EU banking rules.

However, the EU ombudsman concluded that the decision to award the contract to the company "did not provide sufficient guarantees to exclude any legitimate doubt as to the risk of conflicts of interest that could negatively impact the performance of the contract".

"If a bidder has a direct or indirect financial interest in developments in a market, because it invests in that market, or manages investments in that market, there is a clear risk that its work may be influenced by those interests," O'Reilly said in its assessment published on Wednesday (25 November).

Low bid

In her assessment, O'Reilly also notes that BlackRock increased its chances of getting the contract by making a low financial offer - offering to do the contract for €280,000, although the initial estimated value was €550,000.

NGO Change Finance Coalition welcomed the EU Ombudsman's decision, calling on the commission to drop the contract and start afresh.

"For us, a logical consequence should be for the commission to cancel the contract with BlackRock - [who], managing billions of dollars invested in fossil fuels, is highly biased in its advice on sustainable finance," said Jana Leutner from Change Finance.

"Strong sustainability objectives in banking rules, and a taxonomy on environmentally harmful investments, are crucial steps towards [EU climate] goals," she added.

Meanwhile, the EU ombudsman also pointed out that the bloc will see unprecedented levels of spending and investment in the coming years, reminding the commission that citizens expect that contracts involving EU funds are awarded only after a strong vetting process.

"The current rules fall short of providing this guarantee," O'Reilly said, calling on the commission to strengthen the conflict of interest provisions in the EU legislation governing how public procurement procedures financed by the EU budget are conducted.

"The risk of conflicts of interest when it comes to awarding contracts related to EU policy needs to be considered much more robustly both in EU law and among officials who make these decisions," she also said.

"One cannot adopt a tick box approach to the awarding of certain contracts. Treating contract bidders equally is important, but not taking other critical factors appropriately into account when assessing bids does not ultimately serve the public interest," she added.

'Vague' definitions

The EU Ombudsman did not find maladministration on the part of the commission because the definition of conflict of interest is "too vague" in EU financial regulation.

Despite green claims by BlackRock CEO Larry Fink earlier this year, a new report by Corporate Europe Observatory and Change Finance revealed that the firm has been lobbying against the EU setting stringent, sustainable standards for investment.

"Asking BlackRock to suggest the best rules for sustainable finance is like asking a nuclear power company for advice on a nuclear phase-out," said Kenneth Haar from Corporate Europe Observatory.

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