EU lobbying by fund groups fuels fears over vested interest

When BlackRock was awarded prestigious consulting work by the US Federal Reserve and the European Commission last year, the win represented much more than a financial coup for the world’s largest asset manager.

Its appointment to run the Fed’s coronavirus-induced bond-buying programme and its contract to produce a report on EU sustainability rules helped cement the $7.8tn fund group’s close ties with global policymakers.

BlackRock’s growing influence on the public stage is a sign of the times. After long being overshadowed by banks, asset managers are increasingly in the spotlight due to the sector’s huge growth since the 2008 financial crisis. This has prompted them to forge closer links with important decision makers and ramp up lobbying.

“The prestige and respect that Goldman Sachs used to enjoy has been taken over by BlackRock, which is now given the red carpet treatment and shown into the corridors of powers,” said Kenneth Haar, a researcher at Brussels-based campaign group Corporate Europe Observatory. “This comes on the back of asset managers increasing their presence on the lobbying front.”

BlackRock met 31 European Commission officials between 2014 and the end of 2020, according to EU figures that capture both private meetings and roundtables organised on Brussels’ initiative. In addition, over the six-year period to the end of 2019, its estimated EU lobbying spend increased more than 300 per cent, filings analysed by EU LobbyFacts show.

Vanguard, the world’s second-largest investment manager, boosted its lobbying spend by 400 per cent over the period, according to its maximum estimate, while Capital Group and Fidelity International have also increased their resources.

Stepped up lobbying is explained by a desire to provide input into the wave of new rules that have come the sector’s way over the past decade on everything from systemic risk to environmental, social and governance investing.

“In the past the sellside was more dominant in policy debates,” said Victor van Hoorn, a Brussels-based lobbyist. “But now asset managers recognise that they are the best ones to defend their interests.”

Tanguy van de Werve, director-general of the European Fund and Asset Management Association, the sector’s European lobby group, said being part of the policy conversation helped shape good rulemaking. “[Our role] is to raise questions around the practicability and market impacts of some of the detailed rules being proposed,” he said.

However, the growing presence of fund groups in Brussels is fuelling concerns that a handful of powerful companies may be exerting outsized influence on rulemaking.

These concerns came to the surface when politicians and green campaigners decried BlackRock’s appointment to advise on EU sustainability rules in light of its holdings in European banks and fossil fuel companies. The EU’s independent ombudsman subsequently instructed Brussels to review its conflicts of interest rules.

BlackRock’s work for the commission was carried out by its Financial Markets Advisory arm, a distinct consultancy unit within the company that advises central banks and governments. BlackRock says its public policy activity, housed in a separate part of its business, is aimed at “publishing and sharing data to support well-functioning capital markets”.

The commission says it applied EU procurement rules “fully and fairly”, adding that it selected BlackRock due to the technical quality of its offer. It published the first part of BlackRock’s work in December to ensure transparency.

Mr Haar, who was part of the coalition that asked the EU ombudsman to investigate the BlackRock contract, says the case highlights the danger of policymakers basing their decisions on the views of private companies that have their own financial interests at heart.

“Technical expertise is not always neutral,” he said. “It’s risky for the commission to rely on expertise from a sector they are supposed to regulate.”

Adrienne Buller of think-tank Common Wealth says the increasingly concentrated nature of the asset management industry is another reason for vigilance around the sector’s sway over policymakers. “When there are a few extremely dominant players that have a loud voice in terms of lobbying, it becomes problematic,” she said.

The BlackRock controversy also underlines the sensitivity around asset managers’ influence over ESG rulemaking. The EU has sought to position itself as a leader in this area and is rolling out a swath of new regulations aimed at tackling climate change and transitioning to a more sustainable economy.

While most asset managers have voiced support for the initiative, which includes a classification system for green investments and rules on fund groups’ disclosure of ESG risks, recent research by environmental non-profit group InfluenceMap paints a different picture.

InfluenceMap found that groups including UBS, BlackRock, Invesco and BNY Mellon had either responded cautiously to elements of the proposed rules or sought to weaken them. It cited attempts to water down the application of the rules or block proposals such as extending asset managers’ fiduciary duty to cover ESG.

In response to the report, UBS, BlackRock, Invesco and BNY Mellon said they welcomed policy action on sustainable finance. UBS added that the research “[did] not reflect the full breadth” of its activities, while Invesco said it believed sustainable finance rules should balance ambition and reality in order to “crowd in investors rather than crowding them out of the market”.

“In many cases it seems that the financial sector is taking less ambitious positions,” said Rebecca Vaughan, analyst at InfluenceMap. “By attempting to weaken the regulations in little bits, [asset managers] are playing into the hands of the energy sector, which has a much more oppositional stance.”

InfluenceMap also identified asset managers that are using their voice to push for more progressive ESG rules. It singled out BNP Paribas Asset Management, Aviva Investors and French co-operative bank BPCE — which owns Natixis Asset Management and Mirova — as being positively engaged on the issues.

Mr van de Werve said asset managers’ contribution to the debate on ESG rules did not diminish the industry’s commitment to sustainability. “Being on the receiving end of many new sustainable finance regulations and having to implement them, it is legitimate to make our views known.”

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Environmental campaign groups also exert influence over policymakers and are represented on the expert group established by the commission to advise on the next stage of its sustainable finance strategy.

The commission says it makes policy choices independently, taking into account exchanges with and feedback from all relevant stakeholders. “[We] always seek to ensure a balance between different stakeholder groups” when bringing together expert panels, it said.

However, Mr Haar said that how the EU approaches the next batch of ESG rules would be a test of its commitment to fair rulemaking. “We can either end up with a set of rules everyone has to follow or have a voluntary approach with standards developed by the financial sector itself,” he said.

Given the growing influence of asset managers in Brussels, he is concerned that the EU may be about to go down the second route. “The jury is still out on whether the regulatory process is captured. [But] in the past investment fund managers have been extremely successful in setting the agenda.”