By Kate Abnett and Simon Jessop
BRUSSELS/LONDON (Reuters) - The European Commission failed to properly consider conflicts of interest when it appointed a division of BlackRock (NYSE:BLK), the world's largest asset manager, to help develop green banking rules, the European Union watchdog said on Wednesday.
European Ombudsman Emily O'Reilly (NASDAQ:ORLY) launched an inquiry after the EU executive in March appointed BlackRock, through the company's Financial Markets Advisory unit (FMA), to produce a study that would inform EU plans to integrate sustainability into banking prudential rules.
EU lawmakers and NGO Change Finance questioned BlackRock's ability to provide impartial advice as its $7.8 trillion in assets under management includes large stakes in fossil fuel industries and in banks affected by the regulations.
In a decision on Wednesday, O'Reilly stopped short of calling for the Commission to cancel the contract, but said it should have exercised "significantly more critical scrutiny" of BlackRock's application.
"Questions should have been asked about motivation, pricing strategy and whether internal measures taken by the company to prevent conflicts of interest were really adequate," she said.
CANCELLATION CALL
Change Finance on Wednesday called for the contract to be cancelled, and published a report with NGO Corporate Europe Observatory, which said BlackRock and industry groups it is a member of have lobbied to weaken planned EU green finance rules.
A BlackRock spokesman said the Commission had already publicly stated that the technical quality of FMA’s proposal underpinned the contract win.
"FMA has taken a wide-ranging and inclusive approach, including academia, civil society, banks, supervisors and market practitioners, and looks forward to completing its work and delivering its final report to the Commission," he said.
The European Commission said it welcomed the Ombudsman's findings, which did not find evidence of maladministration, and would study its recommendations in detail.
"It confirms what we have said throughout this process: we applied the rules fully and fairly," a spokesman said.
BlackRock beat eight other bidders with its offer of 280,000 euros ($334,000) - roughly half the contract's estimated value. This "exceptionally low financial offer" could be seen as an attempt to secure influence over policies, the Ombudsman said.
BlackRock said it would ensure "physical segregation" of FMA to ensure information did not flow to other parts of its business.
Brussels is undergoing a mammoth policy overhaul, revising energy, farming and finance regulations to better support EU plans to rapidly cut greenhouse gas emissions.
Amid increased scrutiny of existing EU rules, the Ombudsman criticised the Commission last week for granting priority status to gas projects without properly assessing their climate impact.