The EU would like to supplement its banking supervision with a set of rules that also includes environmental, social and governance factors, which in German is most likely to be translated as responsibility. That sounds laudable. However, when you commission the financial group BlackRock of all companies to conduct a study that is to develop the basis for implementing these factors in banking supervision, the laudable idea turns into a farce. After all, BlackRock is a shining example of how not to do it in the environmental, social and governance fields. By Jens Berger.
Together with its competitors Vanguard and State Street, BlackRock has invested more than $300 billion in companies that are among the largest carbon dioxide emitters in the world. These companies’ emissions have risen from 10,593 gigatonnes of CO2 to 14,282 gigatonnes of CO2 since the signing of the Paris Climate Change Accord – equivalent to around 38 percent of global CO2 emissions in 2018. The Australian mining company BHP Group (formerly BHP Billington) alone accounts for 0.52 percent of global CO2 emissions. On October 17, 2019, a group of shareholders submitted a resolution to ban BHP from membership in lobbying associations working against the goals of the Paris Climate Change Convention. At BHP’s annual general meeting, 22 percent of shareholders voted in favour of the resolution, while seven percent abstained. The rest voted against. Among them was BlackRock.
BlackRock also opposed the implementation of environmental policy measures at the oil company Royal Dutch Shell. In December 2018, at a remarkable general meeting, a shareholder group called Climate Change 100+ forced the British-Dutch oil multinational to make several concessions on climate policy. Shell committed itself to setting targets for its carbon dioxide emissions, discloses its lobbying and association activities in climate protection and – this is also remarkable – will in future orientate the salaries of its board members towards the emission savings. The success can be explained by looking at who Climate Action 100+ is. What sounds like a small association of critical shareholders is an alliance of financial groups that together manage 35 trillion US dollars – including Allianz, Axa, the pension fund CalPERS, the German DWS, the Italian Generali, the Dutch Rabobank and the Swiss UBS. Who is missing are the three big ones – BlackRock, Vanguard and State Street. The financial service Portfolio Adviser aptly commented on the resistance with the sentence: “BlackRock and Vanguard betray their rivals in the fight against climate change”. And this is by no means an isolated incident.
In October 2019, Harvard Business School published a study on the voting behaviour of BlackRock and Vanguard in votes related to corporate policy on climate change. The results are appalling. BlackRock and Vanguard are not only among the financial groups that have voted the least in votes on climate change, but in at least 16 cases they have actively prevented resolutions on climate change from being adopted at general meetings.
Will the support for the climate sinners come from the fact that six of BlackRock’s 18 board members were previously employed by a company in the oil or gas sector? Either way. BlackRock has a black file on environmental and climate policy and is therefore unlikely to develop a set of rules that would force the financial sector to include the “environment” factor in its business concept.
Social and governance issues
Blackrock’s record on social and governance factors is similarly devastating. For example, BlackRock is one of the largest shareholders in the Swiss commodity multinational Glencore, which is responsible for the exploitation of the African continent like no other corporation in the world. But even in the industrialised countries of the global North, BlackRock does not make a name for itself as a representative of democratic, social or responsible corporate policy. BlackRock supports global multinationals such as Amazon, Disney, Google, McDonalds, Apple, Facebook and Starbucks to evade their tax liability worldwide. As the largest shareholder, and therefore a major co-owner of these corporations, BlackRock could stop this anti-social activity overnight … but BlackRock doesn’t even think about it.
BlackRock is a frightening example for all those who have ever thought about the term “governance”. The company has significant interests in more than 15,000 major corporations. BlackRock has a stewardship department that manages these 15,000 corporations and has 45 employees. However, these employees only had contact with 1,458 companies from the great BlackRock empire in fiscal 2018. Nine out of ten companies in which BlackRock has a significant stake are therefore not controlled at all, and in the “controlled” tenth, one BlackRock employee comes from 32 companies; and these are not small medium-sized companies, but without exception globally active multinationals, whose shareholdings often include entire files.
Nevertheless, BlackRock participated in 16,124 annual general meetings in the 2018 financial year, voting on 155,131 individual items – and in 92% of all cases it followed the recommendation of the respective company’s board of directors.
So a financial group that does not fulfil its duties as co-owner of thousands of companies should now design a set of governance rules? A giant for whom social factors are simply non-existent in the management of its shareholdings should recommend rules for a social corporate policy to other groups?
What drove the EU Commission to this quirky tender is and remains a mystery; unless one assumes that the planned ESG rules are merely an alibi measure and that one can thus be sure that these rules are guaranteed not to contain any points that will hurt the banks. And that is probably exactly how it will be. Whoever commissions the wolf with a protection concept for the flock of sheep is certainly not interested in the physical well-being of the sheep. And someone is surprised that the EU has such a bad reputation among its citizens.
Translated by Alfonso