BlackRock Must Hit Its ESG Targets​

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By Robyn Ma​


The Story

BlackRock needs to show it can do more than pay mere lip service to ESG (environmental, social, and governance) related initiatives. The asset manager has entered a financing deal with a group of banks for a $4.4bn credit-facility conditional upon achieving certain goals (Wall Street Journal).

As part of this deal, BlackRock must satisfy its ESG targets if it wants to keep its borrowing costs down, which include hitting diversity targets within its workforce. Last year, the firm announced plans to increase its number of women in senior leadership by 3% annually and have its workforce include 30% of Black and Latino people by 2024 (Wall Street Journal).

BlackRock is part of a growing number of firms experimenting with new financing arrangements that incentivise borrowers to achieve ESG-related goals. These loans “are usually structured to cost borrowers more if they fail to achieve their goals” (Wall Street Journal). The firm’s CEO Larry Fink has been encouraging other CEOs to take the leap towards ESG investments, noting that “climate change is investment risk” (Bloomberg; Financial Times).

However, the investment giant is being scrutinised by federal agencies, with former employees complaining of an exclusionary workplace. In response, BlackRock announced it would establish a new investigations team to address workplace complaints and audit its strategy for workplace diversity. A BlackRock spokesman has noted that the “ESG-linked credit facility” highlights its “commitment and accountability to achieving certain sustainability goals by integrating a component of financial alignment” (Wall Street Journal).

What it Means for Businesses and Law Firms

Cash is flooding into responsible investment funds. According to Bloomberg Intelligence, ESG exchange-traded funds made approximately $8bil in 2019, outperforming the amount they raised from 2001 to 2018 combined (Bloomberg). Indeed, last year alone, they raised $31bn in investment.

At face value, ESG investments are attractive because they embody good moral values and promote change. However, it's also a “quantitative strategy", particularly for investors who believe that "companies with fewer ESG risks have a less volatile or better-performing stock, or both” (Bloomberg).

This momentum towards ESG initiatives is driven by a range of factors, including “government regulations, institutional investors, and corporate clients” (Law.com; Financial Times). In America, for example, the establishment of a new role - Senior Policy Advisor for Climate and ESG - in the Securities and Exchange Commission emphasises the gravity governments are placing on sustainability and finance (Law.com).

As corporations begin to develop their own ESG-related initiatives, law firms will need to show clients their own commitment to ESG-related values, including how they can help navigate this new economic and regulatory landscape. For instance, international law firm Seyfarth Shaw has recently formed an ESG group, and Herbert Smith Freehills has announced plans to reduce its carbon emissions to net-zero by 2030 (Law.com). As ESG-related investments grow increasingly attractive, law firms will be on hand to provide due diligence, documentation, and advice on how to navigate and comply with ESG-related conditions.

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