Tennessee has initiated legal action against BlackRock, a USD 9.1 trillion asset manager headquartered in New York, accusing the firm of breaching consumer protection laws through the improper use of environmental, social, and governance (ESG) factors in its investment tactics.
According to the state’s attorney-general, Jonathan Skrmetti, the lawsuit alleges inconsistency in BlackRock’s statements regarding its primary focus between investment returns and ESG considerations. The complaint contends that BlackRock has misled consumers about the extent and impact of its ESG activities, downplaying their influence on investment strategies, even in non-ESG funds, and exaggerating their effects on companies’ financial performance.
The complaint lodged against BlackRock asserted, “For years… BlackRock has misled consumers about the scope and effects of its widespread ESG activity.” Furthermore, the lawsuit contended that “BlackRock has downplayed the extent to which ESG considerations drive its investment strategies across all holdings, even in non-ESG funds,” and it claimed the firm “overstated the extent to which ESG considerations can affect companies’ financial performance and outlook.”
This lawsuit represents the latest move in a series of actions by Republican state financial officers targeting both ESG investing in general and BlackRock specifically. This action follows BlackRock’s reduced support for ESG-focused shareholder proposals and its CEO Larry Fink’s decision to discontinue the use of the term “ESG,” citing its politicization by both conservative and liberal figures.
“Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly,” asserted Skrmetti, a Republican, in a statement first reported by Fox Business regarding the civil lawsuit.
In response, BlackRock stated, “We reject the attorney-general’s claims and will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws.” The company further affirmed, “Contrary to the attorney-general’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting.”
Previously, officials in Texas, Florida, South Carolina, and other Republican-led states withdrew assets from BlackRock and sought divestment from the firm, alleging that its use of ESG considerations amounted to a boycott of fossil fuels. BlackRock, however, has refuted these claims, highlighting its participation in initiatives like the Net Zero Asset Managers program and emphasizing its substantial investments in energy companies, notably ExxonMobil.
BlackRock, one of over 300 asset managers participating in the Net Zero Asset Managers initiative, has consistently rebutted these allegations. Following its inclusion on a list of financial firms boycotting fossil fuel companies in Texas in late 2022, BlackRock emphasized its substantial investment of over USD 100 billion in Texas energy companies, notably ExxonMobil.
Concurrently, BlackRock has faced pressure from the left, with New York City comptroller Brad Lander accusing the firm of succumbing to an anti-ESG pressure campaign that he deemed “misinformed and shortsighted.”
The lawsuit from Tennessee highlighted the firm’s perceived strategy of appeasing both sides to maintain business relationships, stating that BlackRock “appears to have settled on a strategy of telling both sides what they wanted to hear, in an effort to keep everyone’s business.”
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