By Brad Rosen, J.D.
Senator Mike Lee (R-UT), and ten Senate Republican colleagues, issued a letter to Federal Energy Regulatory Commission Chairman Willie Phillips and his fellow commissioners urging FERC to investigate the actions of BlackRock, the world's largest asset manager, regarding prior commitments regarding its ownership structure. The senators also take issue with the company’s role and efforts in fighting against climate change and pursuing net zero greenhouse gas emission targets for utility company holding. They claim BlackRock’s ESG activism hurts Americans.
Lee’s letter to FERC asserts that BlackRock appears to be systematically violating its commitments to the FERC as it previously committed to being a passive investor, while it is attempting to replace directors and otherwise change utility operations to retire fossil fuels to meet net zero greenhouse gas emissions targets. The senators urge FERC Commission to investigate BlackRock’s actions, as well as those of Climate Action 100+ (“CA100+”) and the Net Zero Asset Managers Initiative (“NZAM”), climate advocacy organizations with which BlackRock is affiliated.
A coordinated and sustained approach to opposing ESG objectives. Lee’s letter is a follow up to a motion brought in May of this year by a coalition of 17 Republican state attorneys general, including Utah, which also urged FERC to review BlackRock Inc's ownership of utilities. That action cited concerns about the investment firm's role in initiatives to limit climate change. More recently, Lee has led fellow GOP lawmakers in connection with multiple legislative efforts to prevent federal employees from having the option to make ESG-oriented investments as part of their retirement plans.
BlackRock’s commitments and alleged breaches regarding utility ownership. For over a decade, the FERC has given BlackRock “blanket authorizations” under Section 203(a)(2) of the Federal Power Act (“FPA”) to amass voting securities of American utility companies according to the Senators’ letter to FERC. The Commission’s blanket authorizations were provided with strict limits such as a 20 percent ownership ceiling and the requirement that BlackRock hold stock as a passive investor that does not attempt to influence utility company operations. The letter notes that BlackRock had proposed these limits.
The letter also claims that BlackRock appears to have fundamentally departed from its promises. After joining CA100+ in 2000, the letter goes on say that BlackRock used its holdings to force its climate agenda on American utility companies. The senators state, “BlackRock’s partnering with other activist asset managers through CA100+ and NZAM, appears to fundamentally conflict with its promise to keep its share percentage within certain limits. The members of these organizations involve combined shares that exceed the Commission’s ownership limit of 20 percent.” The senators further assert that, “The members of these organizations leverage the extraordinary power of their combined shares to pressure American utility companies in “engagements” behind closed doors. If company management does not cooperate with demands made in the “engagements,” BlackRock actively uses its shares to vote against those directors.”
BlackRock’s membership in organizations advocating for net zero policies is highly problematic. The letter further observes that BlackRock has played an increasingly active role in influencing the conduct of utility companies and amassing collective voting power in excess of the 20 percent limit by virtue of its membership in various climate advocacy organizations. For example, in January 2020, BlackRock joined CA100+, an activist group comprised of asset managers and others with $68 trillion in collective assets under management. The senators claimed that CA100+ was determined to force companies to reduce their use of fossil fuels and pointed to the organization’s corresponding press release boasting that BlackRock would “bring even more heft to investor engagement” and had committed to “accelerating engagements with the largest corporate greenhouse gas emitters on climate change,” which would “send a powerful signal to companies to reduce emissions.”
Other problematic BlackRock affiliations cited by the senators included NZAM which it joined in 2021, as well as the Glasgow Financial Alliance for Net Zero (“GFANZ”). The senators concluded that BlackRock’s actions, both individually and collectively as a member of CA100+ and NZAM, “fly in the face of its representations to the Commission and the Commission’s consistent limitation that asset managers constituting a “holding company” cannot own more than 20 percent of a utility’s shares.”
A few words about FERC. The Federal Energy Regulatory Commission (FERC), an independent agency within the Department of Energy (DOE), regulates the interstate transmission of natural gas, crude oil, refined petroleum products, and electricity, as well as the interstate sale of electricity at wholesale. Although FERC operates independently, it maintains a close relationship with the DOE due to their interrelated responsibilities. The DOE provides support and guidance to FERC on matters of energy policy, research, and development.