Tennessee Attorney General Jonathan Skrmetti has announced a settlement with BlackRock Inc. resolving allegations that the global investment firm misled consumers regarding the role of Environmental, Social and Governance factors in its investment practices.
The settlement announced January 17 concludes a lawsuit filed by the State of Tennessee under the Tennessee Consumer Protection Act.
In the suit, the state alleged BlackRock failed to adequately disclose its integration of ESG considerations into its decision making with respect to asset management. The suit also claimed BlackRock overstated the financial benefits of ESG-related strategies.
“I think BlackRock has just hit a tipping point,” Skrmetti told Legal Newsline. “They got out in front of the pack on the ESG movement, and a lot of people thought it was the way to go. But the more people looked at it, it was clear this wasn’t the right path.
“Our lawsuit was based on the disparity there. This resolution gives another data point for BlackRock’s pivot. They tried the ESG thing, and there was a lot of push back to it, especially from some state AGs. I think that’s why they were ready to settle to this stringent settlement with us. We want to make sure there is absolute clarity on this issue.”
The AG’s office says these practices allegedly misled investors and consumers regarding BlackRock’s investment objectives and alignments with climate-focused initiatives and other policy-oriented goals.
“This resolution assures that the money Tennesseans invest with BlackRock is managed consistent with the funds’ disclosures,” Skrmetti said. “While investors are always free to buy cause-oriented products instead of focusing on maximum return, this settlement ensures that only investors who make a knowing choice will see their assets directed toward these non-financial goals.”
Among the terms of the settlement:
* Enhanced Transparency: BlackRock will increase its disclosure of proxy voting practices, ensuring investors have greater insights into decision-making rationales.
* Compliance and Oversight: BlackRock will implement compliance measures, including audits by a third-party service to monitor adherence to the agreement’s terms.
* Investor Communications: BlackRock commits to ensuring that its communications with investors are consistent with well-established laws governing disclosure and fiduciary duty.
* Commitment to Financial Interests: For funds that do not have investment objectives beyond financial performance, BlackRock commits to casting shareholder votes solely to further the financial interests of investors.
As part of the settlement, the state will dismiss the lawsuit without prejudice, reserving the right to refile if BlackRock does not substantially comply.
“It’s a dismissal without prejudice,” Skrmetti told Legal Newsline. “I’m optimistic they’ll comply. But if there’s a problem, we don’t lose anything. And we can go back in with out lawsuit against them.”