NASHVILLE, Tenn. (Legal Newsline) - Grabbing a page from the climate-litigation playbook, Tennessee Attorney General Jonathan Skrmetti has accused asset-management giant BlackRock of violating state consumer protection laws by failing to inform investors about how widely it has adopted Environmental, Social and Governance principles that can hurt investment returns.
With $9 trillion under management, BlackRock exerts enormous influence over financial markets and the companies it invests in. But in a lawsuit filed Monday, Skrmetti says BlackRock doesn’t disclose the extent to which it pushes “aggressive carbon-reduction strategies across all assets under management.”
Ordinary investors would be distressed to learn ESG strategies don’t necessarily generate the highest returns, the AG said, but publicly turning away from ESG now could hurt BlackRock’s reputation with “the powerful investors, media members, and politicians who have demanded that firms prioritize ESG considerations.”
“Rather than risk either downside, BlackRock has chosen a third way: deceiving consumers about the company's extensive commitment to fulfilling ESG aims,” the complaint filed Dec. 18 in state court in Tennessee says.
By citing state consumer-protection laws, Skrmetti’s suit resembles the lawsuits that states, climate activists and private law firms have filed against the oil industry, claiming it misled consumers into consuming more hydrocarbon fuels than they would have had they known the true risks of global warming. In his lawsuit against Blackrock, AG Skrmetti says BlackRock has misled consumers by downplaying the extent of its commitment to ESG and saying it doesn’t dictate emissions targets and other goals to companies it invests in.
The manager’s voting records and membership in activist groups like the Net Zero Asset Managers Initiative and CA100+ show otherwise, the AG’s suit says. BlackRock Chief Larry Fink has acknowledged the firm asks companies outside its funds designated as ESG to set emissions targets and threatened voting action against company directors if the targets weren’t “meaningful,” the suit says.
BlackRock also has told investors that companies that follow ESG principles are better long-run investments, while academic studies have shown the opposite. BlackRock’s ESG funds have lagged comparable, non-ESG benchmarks at times, Tennessee says, while charging higher fees.
Skrmetti, a Republican, said some of BlackRock’s public statements suggest it is focused entirely on investment returns, while “others show a company that gives special consideration to environmental factors.” His complaint echoes those made by many conservatives, that money managers are trying to push their own environmental policy goals using the money of ordinary investors. In January, a 21-state coalition of AGs wrote two of the nation’s largest proxy advisory firms about concerns with how environmental, social and governance considerations affect the firms’ proxy voting recommendations and conflict with the financial interests of their clients. Some previously criticized BlackRock over the same thing.
Robert Bork Jr., president of the Antitrust Education Project, said Tennessee’s lawsuit will exposed the tactics of what he called “the ESG cartel.”
“The deception of consumers and investors is far more widespread than most people know,” Bork said. “And the more they learn – and they will learn more – the more they will realize that their retirement savings and the larger economy are being harmed by the false and ineffective environmentalism of ESG.”