BlackRock must meet ESG goals or pay more to borrow money

Investment giant BlackRock will need to meet its workforce diversity and other sustainable business goals to keep borrowing costs low.

The company has a financing deal with a group of banks that ties its borrowing costs for a $ 4.4 billion credit facility to its ability to meet certain goals, such as meeting goals for women in the community. senior management and black and Latino 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. Its objective is to increase the proportion of women in its management positions by 3% each year.

BlackRock’s progress on growing assets in funds focused on companies with high environmental, social and governance ratings will also impact its lending costs. The company aims to increase the approximately $ 200 billion it manages under so-called sustainable strategies to $ 1 billion by 2030.

Depending on how many goals it meets or fails to meet, BlackRock’s lending costs can go up or down.

BlackRock is participating in an unprecedented experience in the world of financing. More and more companies are testing financing mechanisms that encourage borrowers to meet 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 ready-to-use reserve in the event of an emergency. The clauses were among other changes BlackRock recently negotiated with its banks, which included 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 follow indexes. The company and its CEO, Larry Fink, have pushed the companies in which its funds invest to be more attentive to environmental and social risks and to increase the diversity of the 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 perform an internal review.

In response to pressure from shareholders, the company also recently said it plans to audit 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 out on their workplace improvement 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]

This article was published by the Wall Street Journal.

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