For the first time, and in what may prove to be a precedent-setting case, a global asset manager is being sued for allegedly leveraging investors’ money to pursue political goals.
Tennessee Attorney General Jonathan Skrmetti filed a lawsuit on Monday against BlackRock, the world’s largest fund manager with approximately $9 trillion in assets under management, charging that the firm “has been on the forefront of using aggressive strategies to push controversial environmental, social, and governance (ESG) goals across the assets it manages.”
“We want BlackRock to let investors know how their money is going to be managed,” Mr. Skrmetti told The Epoch Times. BlackRock must inform investors, he said, “if their money is going to be managed in a way that furthers ideological ends.”
If BlackRock wants to offer ESG investment funds, he said, “they’re allowed to market those products, they’re allowed to let people buy those products, people can invest in purposeful funds that seek to accomplish something other than just making the money, but there has to be transparency about that.”
The lawsuit charges that BlackRock leverages its power over corporations whose shares it owns to pressure management to pursue goals such as achieving “net-zero” carbon emissions and aligning its policies with the 2015 Paris Climate Accords. It also alleges that BlackRock has misled investors, claiming that they can earn higher returns through ESG investing.
“BlackRock has admitted that promoting ESG aims—like companies’ radically reducing their carbon output—can conflict with its funds’ financial performance,” the lawsuit states. “It is thus only fair that consumers know if the hard-earned funds they invest will be leveraged to BlackRock’s ESG ends, rather than to maximizing financial returns.”
In response to the suit, BlackRock stated: “We reject the attorney general’s claims and will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws.”
“Contrary to the attorney general’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting,” Christopher Van Es, BlackRock’s communications director, stated in an email to The Epoch Times. “On behalf of our clients, BlackRock has invested approximately $40 billion in Tennessee, and we are helping more than 600,000 hard-working Tennesseans retire with dignity.”
Until recently, BlackRock had been an outspoken advocate of ESG investing, which also goes under the euphemisms of “sustainable investing,” “stakeholder capitalism,” and “conscientious capitalism.” This has included an annual letter to investors and corporate executives, in which BlackRock CEO Larry Fink stated that as a shareholder, the company would be “increasing the role of votes on shareholder proposals in our stewardship efforts around sustainability,” and that “in the second half of 2020, we supported 54 percent of all environmental and social proposals, having assessed that they were aligned with long-term value.”
BlackRock at this time “asked” companies whose shares it owned to “disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas emissions by 2050.”
“We expect the issuers we invest in on our clients’ behalf to be adequately managing the global transition towards a net zero economy,” Mr. Fink stated. “Where we do not see progress in this area, and in particular where we see a lack of alignment combined with a lack of engagement, we will not only use our vote against management for our index portfolio-held shares, we will also flag these holdings for potential exit in our discretionary active portfolios.”
At a 2017 New York Times conference, Mr. Fink stated regarding social-justice issues that “you have to force behaviors and at BlackRock, we are forcing behaviors.”
Mr. Fink has taken a different approach this year, stating in June that he would no longer use the term ESG.
“I’m not going to use the word ESG because it’s been misused by the far left and the far right,” Mr. Fink stated, adding that he was “ashamed of being part of this conversation.”
BlackRock has been accused by its critics of attempting to “serve two masters” by pushing a progressive agenda while attempting to achieve favorable returns for investors.
“They cannot both be strictly and rigorously pursuing the fiduciary interests of investors, while at the same time trying to reinvent the global economy,” Mr. Skrmetti said. “And I’m sure they’re going to be explaining how it’s necessary to engage in this ESG activity for the purpose of maximizing investment returns, but the data that we’ve seen shows that if you’ve got an ESG oriented product, it’s not performing as well as a straight index fund.”
Mr. Skrmetti said the goals of his lawsuit are “transparency and clarity.”
“There’s nothing wrong with companies managing assets in a particular way, as long as they’re transparent about it,” he said. “If BlackRock is going to be leveraging the assets under management to push every company in which it owns or in which it controls a stake in a given direction, investors need to know that, and the conflicting statements out there make it difficult for anybody to know how their assets are going to be managed.”
This lawsuit is based on investor protections under Tennessee law; however, other conservative states have also been critical of BlackRock.
In August 2022, for example, 19 state attorneys general wrote a letter to BlackRock, charging that it “has used citizens’ assets to pressure companies to comply with international agreements such as the Paris Agreement that force the phase-out of fossil fuels, increase energy prices, drive inflation, and weaken the national security of the United States.” Among other things, the letter highlighted BlackRock’s membership in net-zero organizations that pledged to reduce the use of oil, gas and coal.
BlackRock responded to this letter, stating that “while BlackRock participates in a wide variety of organizations on topics of interest to our clients, we have made it clear that we do not coordinate our votes or investment decisions with external groups or organizations,” and that “BlackRock’s belief that climate risk poses investment risk is backed by our publicly-available research.”
In May 2023, 17 state attorneys general filed a motion requesting that the Federal Energy Regulatory Commission (FERC) investigate whether BlackRock is acting as an “activist” investor regarding its shareholding in public utility companies, which are aggressively retiring coal and gas plants.
In December 2022, BlackRock’s head of external affairs Dalia Blass, faced criticism during a hearing before the Texas state senate, for what some senators alleged was political activism and its membership in anti-fossil-fuel organizations like Climate Action 100 and the Net Zero Asset Managers Alliance. Ms. Blass told state senators that BlackRock’s membership was for the purpose of gathering information.
“We participate in Climate Action 100 to engage in dialogue with other participants, market participants, governments so that we understand issues that are relevant to our clients,” said Ms. Blass, who recently joined BlackRock from the Biden administration, where she worked at the Securities and Exchange Commission (SEC).
Texas State Sen. Bryan Hughes, a Republican, responded that “[BlackRock’s] website doesn’t say anything about engaging in dialogue in Climate Action 100; BlackRock’s website says, ‘We have joined Climate Action 100 to help ensure the world’s largest greenhouse gas emitters take necessary action on climate change.’
“What we’re learning is, BlackRock says whatever it needs to say to whoever it’s talking to at the time,” Mr. Hughes said, growing increasingly frustrated. “Can BlackRock send us a witness who can tell us whether that’s a true or false statement on its website today?”
Ms. Blass responded, “Sir, if you pulled that off our website, then that is on our website.”
BlackRock has defended its policies and performance, stating that “as a fiduciary, our only agenda is to maximize financial returns consistent with our clients’ mandates. The money we manage is not our own, and we are always bound to invest consistent with our clients’ choices, their best financial interests, and applicable
law.”
In addition, BlackRock stated, the company belongs to more than 300 organizations and “we do not make commitments or pledges to meet environmental or other standards that constrain our ability to invest our clients’ money on their behalf consistent with their objectives.”
From The Epoch Times