Cheaper Capital For Social Responsibility

Blackrock is incentivizing the hiring and promotion of minoritiesand women.

BlackRock, with $9 trillion of assets under management, is giving itself an incentive to meet environmental, social and corporate governance (ESG) goals by tying its own funding costs to ESG targets.

A consortium of banks has given the asset manager a $4.4 billion, 5-year credit line to access in case of emergencies. The costs of its borrowing will be reduced if the company meets goals for minority employment and gender-diverse senior leadership.

In effect, the deal conveys the message that banks can discount capital costs in exchange for social responsibility. Banks involved include Wells Fargo, the administrative agent; Citigroup, the syndication agent; and a long list of international banks including Bank of China, Barclays, Credit Suisse, Deutsche Bank, BNP Paribas and Royal Bank of Canada. Depending on BlackRock’s progress toward its ESG goals, interest rates can fluctuate by five basis points, and commitment fees can vary by a basis point.

To attain the least expensive arrangement, the asset manager must grow the proportion of African American and Latino American employees in its workforce by 30% within three years. Today, African American employees represent only 5% of BlackRock’s workforce and 3% of its senior executives.

The firm also plans to increase female representation within its ranks. Its short-term goal is to have women compose 30% of its senior leaders—directors or managing directors. BlackRock plans to increase the share of women in its leadership ranks by 3% each year.

Finally, BlackRock promises to integrate more companies with high ESG ratings into its funds. Right now, the fund manages $200 billion in sustainable investments; the goal is to grow this category to $1 trillion by 2030. BlackRock is actively pursuing its objectives: The group recently launched two low-carbon Transition Readiness exchange-traded funds that raised $2 billion.