BlackRock sued for alleged misleading ESG strategy

Tennessee lawsuit claims 'a pattern of deception' which the firm rejects.

Tennessee sued BlackRock Inc. for allegedly breaching consumer protection laws by making “misleading” statements about its ESG investment strategy.

State Attorney General Jonathan Skrmetti said BlackRock funds that don’t take into account ESG factors are being unfairly impacted by the asset manager’s membership in climate groups, its shareholder-voting record and the pressure it puts on companies to meet environmental goals, according to a complaint filed Monday in state court. This shows a “pattern of deception” that has hurt investors, the complaint says.

“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 to Tennessee consumers,” Skrmetti said in the complaint.

The lawsuit is the first by a GOP official against an investment firm for its ESG strategy. Republican politicians have criticized BlackRock and its chief executive officer, Larry Fink, for championing environmental, social and governance principles, an approach that takes into account topics like global warming. Florida and other GOP-led states have collectively pulled billions of dollars from the world’s biggest money manager. In response, Fink has said he no longer uses the ESG label because it’s become too politicized.

BlackRock said in a statement that it rejects Tennessee’s claims and plans to contest the accusations. BlackRock has invested about $40 billion in the state, and “we are proud of our contribution and committed to the future in Tennessee.” The New York-based firm managed $9.1 trillion in total at the end of September.

In the lawsuit, Skrmetti cited instances between 2021 and 2022 where BlackRock changed its statements about the financial impact of ESG. He pointed to examples of how the firm voted against corporate boards such Exxon Mobil Corp. because they failed to set targets to cut greenhouse gas emissions.

Skrmetti also cited BlackRock’s membership in the Net Zero Asset Managers initiative and Climate Action 100+, industry groups that aim to use their financial muscle to help lower corporate greenhouse gas gases. The suit calls NZAM and CA100+ “activist organizations focused on achieving a political and environmental goal.”

Examples like these show how BlackRock has “downplayed the extent to which ESG considerations drive its investment strategies across all holdings, even in non-ESG funds,” according to the complaint. Tennessee said it’s seeking injunctive relief, civil penalties, disgorgement, restitution for consumers and recoupment of the state’s costs.

BlackRock said in a letter to Climate Action 100+ in 2020 that it would make investment and shareholder-voting decisions independent of the views of the organization.

Skrmetti is part of a group of attorneys general who sent letters earlier this year to money managers questioning their ESG-related efforts. AGs in Kentucky, Montana and Indiana have sent subpoenas and civil investigative demands to investment firms asking them about their climate work.

The Tennessee complaint “covers the waterfront of the anti-ESG movement,” said Lance Dial, a Boston-based partner at law firm K&L Gates LLP. “It’s a full synthesis of what’s being argued by those against ESG.”