On Monday, Tennessee sued asset management behemoth BlackRock for allegedly misleading consumers about its Environmental, Social, and Corporate Governance (ESG) policies.
The complaint, filed by Tennessee attorney general Jonathan Skrmetti, alleges that Blackrock has made inconsistent and confusing statements regarding its use of ESG in its investment strategies that have led consumers astray.
“We allege that BlackRock’s inconsistent statements about its investment strategies deprived consumers of the ability to make an informed choice,” Skrmetti said in a statement. “Some public statements show a company that focuses exclusively on return on investment, others show a company that gives special consideration to environmental factors. Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly.”
BlackRock is a member of ESG coalitions Net Zero Asset Managers initiative and Climate Action 100+. Participation in these groups compels BlackRock to make various pledges to combat climate change that affect its clients’ assets and achieve specific emissions reduction targets, the complaint said. These promises include lobbying, engagement, voting on shareholder proposals, and managing assets with the goal of achieving “net zero” carbon emissions by 2050, according to the complaint.
The complaint claimed BlackRock has made “climate and natural capital” a top shareholder engagement factor while maintaining in other messaging that return on investment, not environmental concerns, is its main priority. BlackRock, the complaint said, has tried to appeal to a broad pool of customers who don’t like ESG while appeasing progressive politicians and other interest groups. Struggling to walk this financial tight rope, it has chosen a third way, between alienating either group, the complaint said: “deceiving consumers about the company’s extensive commitment to fulfilling ESG aims.”
BlackRock has, in recent years, come under fire for supporting ESG while investing heavily in China, the world’s worst polluter and violator of environmental, social, and corporate-governance standards. The firm’s “Path to Net Zero” website states that “the transition to a net zero world is the shared responsibility of every citizen, corporation, and government.”
BlackRock, the complaint said, has repeatedly voted to pressure companies in the fossil fuel business, such as the Chevron Corporation, Walmart Inc., and United Airlines Holdings, Inc., to align their lobbying with the carbon-emissions goals of the Paris climate accords.
“BlackRock has engaged in a series of unlawful ESG-related misrepresentations and omissions in connection with the marketing or sale of its investment products and services,” the lawsuit stated. “BlackRock has downplayed the extent to which ESG considerations drive its investment strategies across all holdings, even in non-ESG funds. And BlackRock has overstated the extent to which ESG considerations can affect companies’ financial performance and outlook.”
Before the Tennessee lawsuit, the company got into trouble with other Republican-controlled states over its ESG criteria. Democratic-dominated states largely support BlackRock’s ESG goals.
In August 2022, 19 red-state attorneys general sent BlackRock CEO Larry Fink a letter stating that BlackRock’s ESG investing violates their laws governing fiduciary duties. BlackRock was accused of prioritizing its “net-zero” carbon emissions agenda over investor returns, which is the main goal of a fiduciary. Red-state treasurers in Missouri, South Carolina, Louisiana, Utah, Arkansas, and West Virginia then announced the divestment of over $3 billion in assets from BlackRock over its ESG and net-zero rules.
“We reject the Attorney General’s claims and will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws,” a spokesperson for BlackRock told National Review. “Contrary to the Attorney General’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting.”
The spokesperson also claimed that after joining CA100, BlackRock submitted a public letter confirming that it operates independently and in its clients’ interests letter is available
“BlackRock owes fiduciary and contractual duties to its clients,” the letter read. “These duties extend to our proxy voting and engagement with issuers on investment stewardship topics, including climate change. As a result, BlackRock must independently exercise its fiduciary duties to our clients in determining how we prioritize engagements and how we will vote proxies.”