Given the current economic stressors affecting the fossil fuel industry, there is growing political interest in investment policies that financial institutions are applying to that industry. On May 7, Republican lawmakers penned a letter to the Trump Administration that cited the economic instability of the COVID‑19 pandemic as the basis for a request for regulatory action to prevent financial institutions from diverting their private funds away from the fossil fuel industry. This request comes on the back of political uncertainty over how such investment institutions would treat the fossil fuel industry under federal coronavirus stimulus programs. The investment industry may be finding itself as a new frontier for energy policy and climate change debates.
In January, the interfusion of energy policy into the investment world was put on the center stage when BlackRock, the world’s largest asset manager, announced that it was going to be making sustainability and climate change integral to its procedures for constructing portfolios and managing risk. This announcement included a disclosure that the firm was in the process of removing its investments from thermal coal production companies. This announcement accompanied BlackRock Chief Executive Laurence Fink’s influential 2020 letter to CEOs that described a predicted “fundamental reshaping of finance” due to climate change and set out an ultimatum for companies to either disclose clear sustainability policies or face growing skepticism from the markets.
Then, after the Coronavirus Aid, Relief, and Economic Security (CARES) Act become law in late March, the Federal Reserve tapped BlackRock to administer aspects of the Secondary Market Corporate Credit Facility (SMCCF) including bond-purchasing aspects of the CARES Act. Lawmakers from both sides of the aisle expressed some concern about BlackRock’s involvement. Republican lawmakers urged the Federal Reserve to emphasize to BlackRock that it must not implement its sustainability-favored investment practices in carrying out its administration duties for the SMCCF. On the other hand, Democratic lawmakers have sent a letter to the Federal Reserve requesting details on investment guidelines provided to BlackRock and have criticized BlackRock’s involvement based on the firm’s size and its continued ties to sectors of the fossil fuel industry.
These energy policy undertones of the financial relief efforts may shape portions of the debate around the potential next round of federal coronavirus relief, given that lawmakers seem to be moving forward with less bipartisanship in those efforts. Outside of these legislative efforts, the May 7 letter that Republicans sent to the Trump Administration argues for the use of “every administrative and regulatory tool” available to prevent investment institutions from diverting their resources from the fossil fuel industry. The letter suggests that the participation of these institutions in federally guaranteed loan programs and coronavirus relief programs for small businesses could provide the Administration with the leverage to curtail these institutions’ implementation of private policies that would otherwise further stress the domestic fossil fuel industry that is already in peril due to the pandemic and other current affairs.
While the Trump Administration has set forth a policy favoring development of domestic fossil fuel resources—and has taken steps to implement this policy including repeal of the Clean Power Plan and urging FERC to throw a lifeline to coal power plants—it remains to be seen whether the Administration will take action on this new request from Republican legislators. However, the energy policy debate taking place in the economic investment arena is likely to continue to play out through the next round of federal coronavirus stimulus and may ultimately continue to dominate federal energy policy discussions. Squire Patton Boggs will continue our coverage of the coronavirus stimulus efforts and will continue to monitor private and public investment practices as they relate to the fossil fuel industry.