Mississippi Issues Cease-and-Desist against BlackRock for Allegedly Misleading Investors on ESG Strategy

The state of Mississippi issued a cease-and-desist order against BlackRock for allegedly misleading investors on its environmental, social, and governance investment strategies.

Mississippi secretary of state Michael Watson (R.) on Tuesday served BlackRock with the order and a notice of of intent to impose an administrative penalty, potentially a multi-million dollar fine, for what Watson believes to be BlackRock’s pattern of deceiving investors on the asset manager’s climate investment goals.

“BlackRock has made and continues to make untrue statements of material fact, and to omit material facts to make its statements not misleading, to investors and potential investors in Mississippi,” the cease-and-desist letter reads, according to a copy obtained by National Review.

“These misrepresentations pertain to BlackRock’s provision of investment services, especially its involvement in pushing Environmental, Social, and Governance (‘ESG’) factors on portfolio companies. Additionally, many of BlackRock’s acts, practices, and courses of business operate or would operate as a fraud or deceit upon investors and potential investors in Mississippi.”

Watson highlights the non-ESG products offered by BlackRock, which allow investors to put money into exchange-traded funds (ETFs) designed to track a particular index of equities. BlackRock offers similar ETFs for bond markets, and none of them mention ESG in their investment objectives.

The cease-and-desist accuses BlackRock of misconstruing the investment strategies of the non-ESG funds. Watson cites the asset manager’s ESG-motivated shareholder engagement, political lobbying, and carbon-emissions goals. BlackRock has used its shareholder proxy votes to advance its environmental goals in accordance with a letter it wrote to investors in 2020 warning them, “We will be increasingly disposed to vote against management when companies have not made sufficient progress” on sustainability measures.

The shareholder voting strategy BlackRock outlined was evident in its votes against the Exxon board of directors and a director of Woodside Petroleum over failures to adopt long-term emissions reduction standards, the order notes. Last year, BlackRock voted on 7 percent of ESG–related shareholder proposals, the firm’s proxy voting report indicates.

Portfolio companies have been advised by BlackRock to create “climate risk” investment strategies and incorporate them into long-term investment decisions. The companies are expected to devise their own strategies and disclose them to investors.

BlackRock is a member of the Net Zero Asset Managers Initiative (NZAMI), an international coalition of financial institutions with $57 trillion in assets under management.

“BlackRock’s NZAM commitment demonstrates that it is presently ‘seek[ing] to follow’ across all assets under management ‘a sustainable, impact or ESG investment strategy.’ For the same reasons, BlackRock’s NZAM commitment provides a clear ‘indication’ that such a strategy ‘will be adopted’ by all of BlackRock’s funds (that is, ‘all assets under management’) in the future. Accordingly, BlackRock’s
statements are to the contrary,” the order states. Watson also references Climate 100+, another international climate investment coalition that BlackRock was a member of until it partially withdrew from the group last month.

“Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means. All citizens should have the opportunity to make informed and educated decisions when investing their hard-earned money. If not, our office will hold these bad actors accountable,” Watson said in a statement provided to National Review.

The NZAMI website lists the commitment made by each organization to “reach net zero emissions by 2050 or sooner across all assets under management” and set interim targets for the portion of assets to be “net-zero” before 2050.

Members of NZAMI are advised to “implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with our ambition for all assets under management to achieve net zero emissions by 2050 or sooner” as part of each firm’s implementation for its entire portfolio.

NZAMI acknowledges the need for asset managers to abide by “mandates agreed with clients and clients’ and managers’ regulatory environments” when making climate-based commitments. BlackRock’s “2030 net zero statement” echoes the theme of pairing climate services and environmental investment approaches and claims the firm does not seek to use client funds to engineer climate outcomes.

In a statement to National Review, BlackRock disputed Watson’s allegations and restated its outward commitment to working on behalf of its clients.

“Many policymakers and government officials have ideas on how we should invest our clients’ assets. We are always bound to invest consistent with our clients’ choices, their best financial interests, and applicable law,” BlackRock said.

“Our only agenda is maximizing risk-adjusted returns for the funds our clients choose to invest in. We operate in one of the most highly regulated industries in the country and are committed to following the law in every respect.”

BlackRock has 30 days to respond to the Mississippi secretary of state’s order. At the same time, the Texas board of education removed over $8 billion of assets from BlackRock’s stewardship because of its ESG policies.

Anti-ESG consumer advocate Will Hild, president of Consumers’ Research, told NR he is thrilled with Mississippi’s decision and the increased pressure on BlackRock’s ESG approach.

“This first-of-its-kind action made by Mississippi Secretary of State Watson is another huge blow to Larry Fink and his continued support of the Leftist ESG agenda. Larry Fink and BlackRock continue to pretend that the only time they engage in ESG, it is with the permission of the shareholders, but in reality, ESG policies have seeped into every facet of BlackRock’s asset management,” Hild said.

“They’ve been lying to their customers, and states like Mississippi are not going to allow this to continue.”