Sustainable Finance Newsletter - FERC spotlight looms for BlackRock & Vanguard

Utah Medical Products

14/12/2023 14:00

By Ross Kerber
       Dec 14 (Reuters) - Last May I wrote about efforts by
Republican elected officials  in proceedings  before a U.S.
utility regulator to question the role that big index funds had
taken in their ownership of major utilities. 
    
Now it looks like those efforts might have prompted some action,
based on a Sunshine Notice posted about a meeting on Dec. 19 at
the Federal Energy Regulatory Commission (FERC). It's
interesting partly because a liberal advocacy group has raised
similar concerns about the growing influence of the big funds,
which could soon be aired out.
    
You can read more about the matter below. This week I've also
highlighted a story by myself and colleagues showing how
corporations worldwide are getting into DIY Carbon Pricing,
absent much formal guidance from regulators. And don't miss a
smart analysis by colleagues about how sustainable fund managers
aren't so impressed by a COP28 emissions-reduction pledge by oil
majors.
    
Please connect with me on LinkedIn where I welcome comments and
feedback. If you have a news tip, potential content, or general
thoughts feel free to email me at 

(And yes, this newsletter usually comes out on Wednesday, but
this was a busy week.)
       
    This week's Most-Read
  
    Big Oil's bid to woo ESG investors fails to impress
  
    No global carbon price? Some companies set their own
  
    Storm hitting Chinese ports is a wakeup call for climate
risk to markets
  
        
    FERC spotlight looms for BlackRock & Vanguard
  
Pressure on BlackRock  BLK.N  and Vanguard over the size of
their utility holdings may produce some guidance from the top
U.S. energy regulator on the lingering question of whether index
funds have gotten too big.
    
FERC has listed as an agenda item "Federal Power Act Section 203
Blanket Authorizations for Investment Companies" for a Dec 19
meeting. Section 203 allows the commission to regulate changes
in utility ownership.
    
FERC representatives did not give more detail, but the
commission has been grappling with questions about big index
funds raised by liberals and conservatives alike. 

Tyson Slocum, a director for the liberal advocacy group Public
Citizen, said he expects FERC will begin some kind of review or
public discussion about the broad authorizations the commission
has granted BlackRock and Vanguard to own big utility stakes. 
    
"I think they're going to propose some sort of standards to
qualify for blanket authorizations, which may mean they're going
to place some limits on it," Slocum said. 

Together running some $16 trillion, BlackRock and Vanguard face
concerns about their impact on markets and corporate governance.
Each has received authorizations from FERC to exceed ownership
limits, like one to Vanguard allowing it to own up to 20% of
utility voting securities, with no one fund owning more than
10%. 
    
A group of Republican attorneys general had protested that
waiver, saying Vanguard was no longer just a passive investor
because of steps like supporting calls for corporate greenhouse
gas disclosures. On May 10, a larger group of Republican AGs
requested FERC review a 2022 authorization given to BlackRock,
and they renewed their request on Dec. 6. 
    
FERC's four current commissioners include two Democrats and two
Republicans. When I asked about the attorney generals' concerns
the only response I got came from a representative of Republican
commissioner Mark Christie referring me to comments he made in
2022 when granting BlackRock's authorization.
 
Praising the views of Public Citizen's Slocum, Christie wrote
that "With regard to this Commission’s regulation of electric
utilities, the important question is whether huge asset managers
like BlackRock are able to exert undue pressure on regulated
public utilities or their holding companies to engage in
practices that may undermine their primary responsibilities of
delivering reliable power to consumers at just and reasonable
rates." Further scrutiny is warranted, he wrote.
    
Christi Tezak, managing director of researcher Clear View Energy
Partners, said she expects FERC next week may seek comments on
questions like how it should treat cumulative passive
investments by related entities such as groups of funds managed
by one company, and what if any changes the commission might
make to its oversight. She cautioned that FERC does not regulate
the overall size of asset managers, and that no final action is
likely for months or longer.

"Whatever comes out next won't be written overnight," she said.

    Representatives for the AGs who led the Dec. 6 motion,
Utah's Sean Reyes and Indiana's Todd Rokita, each declined to
comment on the upcoming hearing.
  
      
BlackRock declined to comment. In a May 25 filing asking FERC to
deny the AG's motion, BlackRock said it only "encourages sound
corporate governance and business practices" at portfolio
companies and does not co-ordinate proxy votes with others. 

Vanguard declined to comment. It had previously told FERC that
its funds do not exert control over the decisions of the
utilities.
          
    Company News
  
In a ruling that could upend the app store economy, Epic Games
prevailed in its high-profile antitrust trial over Alphabet's
Google. GOOGL.O  Epic had alleged the Play app operated as an
illegal monopoly, and convinced a jury on all counts.
     
Miner Glencore  GLEN.L  said it will publish an updated climate
transition plan in March, under pressure after big investors
including BlackRock rejected the company's climate report last
May. 
    
Joining efforts to pressure automaker Tesla  TSLA.O  into
accepting collective bargaining rights, Sweden's Transport
Workers' Union said it would stop collecting waste at the
company's workshops in the country.
    
    On my radar
  
There is a lot to track coming off the COP28 climate summit
around how big an impact the global agreement to start reducing
fossil fuel consumption actually makes, including how much help
developed countries will offer the rest of the world and the
role of technologies like carbon capture.

We're not far off from the World Economic Forum's annual meeting
in Davos, Switzerland set for Jan 15-19. This year's theme is
"Rebuilding Trust" according to its website.

 (Reporting by Ross Kerber; Editing by David Gregorio)
 ((ross.kerber@thomsonreuters.com; (617) 412 0093;))