BlackRock must meet ESG goals or pay more to borrow money
Investment giant BlackRock Inc.
will need to meet its workforce diversity and other sustainable business goals to reduce corporate borrowing costs.
The company has a financing deal with a group of banks that ties its lending costs for a $ 4.4 billion credit facility to its ability to meet certain goals, such as meeting goals for women at black and Latino senior management and employees in its workforce.
The company plans to increase the share of blacks and Latinos in its U.S. workforce by 30% by 2024, a spokesperson said. It aims to increase the proportion of women in its leadership ranks by 3% each year.
BlackRock’s progress in growing assets in funds focused on companies with high environmental, social and governance ratings will also have an impact on its lending costs. The company aims to increase the roughly $ 200 billion it manages under so-called sustainable strategies to $ 1 trillion by 2030.
Depending on the number of goals met or not, BlackRock’s lending costs could go up or down.
BlackRock is participating in a new experience in the world of financing. More and more companies are testing financing terms that encourage borrowers to meet their environmental or sustainability goals. These loans are usually structured to cost borrowers more if they do not meet their goals.
The loan is a five-year credit facility that gives BlackRock a pool ready to use in an emergency. The clauses were part of changes BlackRock recently negotiated with its banks, including a $ 400 million increase in the size of the facility. The credit agreement was disclosed in a regulatory filing this week.
“More and more institutions have given more serious thought to sustainability finance over the past year,” said Rich Fields, partner at King & Spalding law firm which focuses on corporate governance issues. ‘business. “Borrowers and lenders are increasingly interested in demonstrating their commitment to ESG performance through their financing arrangements.”
BlackRock is best known for its wide range of funds that trade quickly and track indexes. The company and its CEO, Larry Fink, have pushed the companies in which its funds invest to be more aware of environmental and social risks and to increase the diversity of their workforce.
BlackRock’s internal policies and culture have been in the spotlight in recent weeks. After articles and blogs featured complaints from former employees about an exclusionary workplace, BlackRock recently said it was setting up a new investigative team to deal with workplace complaints and hired a law firm to do an internal review.
In response to pressure from shareholders, the company also recently announced that it plans to review its strategy to improve diversity within the company and respond to the widest range of customers.
Going forward, the new loan facility will impose a cost on the asset manager for missing their workplace improvement goals and other goals.
“The ESG linked credit facility reinforces BlackRock’s commitment and responsibility to achieve certain sustainability goals by incorporating a financial alignment component through our liquidity management strategy,” said a spokesperson for BlackRock.
Write to Dawn Lim at [email protected]
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Appeared in the print edition of April 8, 2021 under the title “BlackRock Lending Costs Tied to Diversity”.