BlackRock Inc., the world's largest asset manager, is pushing back on objections to its environmental, social and corporate governance policies lodged by a coalition of 17 Republican attorneys general with the Federal Energy Regulatory Commission.
In a May 10 filing, the Republican coalition argued that two climate-focused initiatives BlackRock participates in — Climate Action 100+ (CA100+) and the Net Zero Asset Managers Initiative (NZAMI) — should be considered holding companies, given the percentage of US utility securities held by the groups' members.
As such, the attorneys general asked FERC to revisit its April 2022 blanket reauthorization (EC16-77) for BlackRock to acquire shares in US electric utilities under Section 203 of the Federal Power Act (FPA).
BlackRock assailed the coalition's reasoning in a May 25 response.
"Under the movants' flawed logic, virtually any industry initiative (such as the Edison Electric Institute or the Electric Power Supply Association) and its members or signatories would be considered a 'holding company' for purposes of FPA Section 203, which is not the case and would be an absurd result," BlackRock said.
The dispute is the second FERC proceeding in which Republican attorneys general have sought to intervene in a large asset manager's acquisition of US electric utility shares over ESG concerns.
On May 7, FERC approved a similar application (EC19-57) by the Vanguard Group Inc., the world's second-largest asset manager, despite anti-ESG objections from 13 Republican attorneys general. The application was automatically approved by operation of law after FERC, which is currently split 2-2 along partisan lines, failed to act on it within 180 days.
Although FERC did not issue a formal order in the Vanguard proceeding, Republican Commissioners Mark Christie and James Danly issued a joint statement expressing concern about institutional investors exerting influence over utility companies.
"This is an economywide issue that merits the attention of Congress itself," Christie and Danly said.
Coalition seeks FERC action
Under FPA Section 203, FERC prohibits individual funds from holding more than 10% of a utility's voting securities and sets a 20% limit on the acquisition of utility shares in aggregate. Those requirements are designed to ensure institutional investors cannot exert control over publicly traded utilities.
With regard to BlackRock, the Republican attorneys general coalition said CA100+ and NZAMI should be considered holding companies for two key reasons.
First, both initiatives seek to "coordinate shareholder voting power across their members to influence the operations of FPA-covered utilities," the coalition said. And second, the percentage of utility stock owned by the asset managers that have joined CA100+ and NZAMI exceeds the 20% maximum that FERC permits in the aggregate, the attorneys general asserted.
The two initiatives, "including their signatories such as BlackRock, are 'holding companies' ... but the commission has never authorized the purchase, acquisition, or taking of securities in FPA-covered utilities in relation to them," the coalition said.
As relief, the coalition asked FERC to audit whether BlackRock is complying with its commitment to remaining a passive investor as detailed in the reauthorization application approved in April 2022. The coalition also sought a FERC order directing BlackRock to "cease all coordination with other asset managers and asset owners to influence control of utility operations" before purchasing additional securities in FPA-covered utilities.
The coalition asked FERC to set the motion for an evidentiary hearing, or alternatively, convert it to a formal complaint under FPA Section 206.
The May 10 motion, filed by attorneys general representing Utah and Indiana, was also submitted on behalf of attorney general offices in Alabama, Alaska, Arkansas, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Ohio, South Carolina, South Dakota, Texas and West Virginia.
BlackRock urges FERC to deny motion
As an initial matter, BlackRock urged FERC to reject the May 10 motion as untimely.
"The time for protesting BlackRock's most recent reauthorization request under FERC rules ended when the deadline for intervention passed over a year ago," BlackRock said.
Turning to the substance of the coalition's claims, BlackRock argued that the motion "does not offer any new information that should cause the commission to revisit its prior decision."
"It largely consists of a recitation of public documents that predate the deadline to intervene on BlackRock's reauthorization," the company said.
BlackRock added that to its knowledge, neither CA100+ nor NZAMI "own, control or hold, with the power to vote, any voting securities of any companies, including public utility companies."
"BlackRock's participation in initiatives such as CA100+ and NZAMI allows it to join in dialogue with governments, companies and financial institutions on matters that BlackRock believes could impact the long-term economic value of its clients' portfolios," the asset manager said. "Participating in these dialogues does not require BlackRock to make any commitments or pledges that may interfere with its fiduciary duties to its clients."
The proceeding has potentially broad implications, according to legal experts.
FERC is not required to act on the May 10 motion, but the filing nevertheless provides a vehicle for commission action, Steptoe & Johnson LLP said in a May 25 client alert.
If FERC were to side with the Republican attorneys general, "a broad set of investors, asset managers, and utilities could be affected," the law firm said. "Certain transactions that did not require FERC approval may need to be reevaluated, and it could call into question transactions made under FERC-granted blanket authorizations."
Granting the May 10 motion in full would also subject climate organizations deemed "holding companies" to FERC regulation in certain instances, including under FPA Section 203, the law firm said.
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