In short, BlackRock has engaged in a series of unlawful ESG-related misrepresentations
Larry Fink, CEO of BlackRock, attends a roundtable discussion titled: “Financing the New Climate Economy” at the UNFCCC COP28 Climate Conference in Dubai, December 04, 2023. (Sean Gallup/Getty Images)
Tennessee Sues BlackRock Over Alleged Deceptive ESG Practices
Tennessee is taking legal action against BlackRock, accusing the private equity giant of deceptive acts and practices in relation to its Environmental, Social, and Corporate Governance (ESG) offerings, announced Republican attorney general Jonathan Skrmetti.
The lawsuit, filed by Skrmetti in a Tennessee circuit court on Monday, alleges that BlackRock has made false or misleading representations to its customers regarding its investment services. The suit claims that the company prioritizes ESG considerations more than it publicly advertises, resulting in harm to its clients. Under the ESG framework, BlackRock directs funds to companies that meet specific environmental and social criteria, rather than solely focusing on financial returns.
“In short, BlackRock has engaged in a series of unlawful ESG-related misinterpretations and omissions in connection with the marketing or sale of its investment products and services to Tennessee consumers,” states the lawsuit.
While BlackRock has faced criticism and regulatory scrutiny from Republicans regarding its ESG investments, Skrmetti’s lawsuit represents the first legal challenge brought by an attorney general, accusing the company of violating consumer protection laws. If successful, the suit would require BlackRock to provide restitution to Tennessee consumers.
“BlackRock can’t have it both ways,” Skrmetti told the Washington Free Beacon. “On one hand, it wants to play it straight and say it is focused purely on making money. On the other, they make very public commitments to reducing greenhouse gas emissions.”
“The company cannot appease ESG activists without compromising their foundational obligation to maximize returns,” the Republican continued. “My office will fight to ensure that every company, no matter how big, treats consumers with honesty and fairness.”
BlackRock, the world’s largest asset manager, has pledged to vigorously contest the lawsuit. In a statement sent to Fox Business, a BlackRock spokesperson stated that the company “will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws” and “fully and accurately discloses our investment practices.”
The lawsuit filed by Skrmetti highlights that BlackRock’s website features an advertisement for one of its investment options claiming that the ”fund does not seek to follow a sustainable, impact or ESG investment strategy.” However, in 2021, BlackRock joined the Net Zero Asset Managers Initiative, a collective of investment providers who pledge to ”support investing aligned with net zero emission by 2050 or sooner.”
“BlackRock has admitted that promoting ESG aims—like companies’ radically reducing their carbon output—can conflict with its funds’ financial performance,” states the lawsuit. ”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.”
What specific consumer protection laws in Tennessee are BlackRock’s ESG practices accused of violating in the lawsuit?
The lawsuit argues that BlackRock’s ESG practices violate Tennessee’s consumer protection laws and that the company has made misleading representations to its customers. The lawsuit also asserts that BlackRock’s ESG approach is not adequately disclosed to its clients, resulting in harm to investors.
BlackRock, the world’s largest asset manager, has increasingly prioritized ESG considerations in its investment strategies. ESG investing focuses on environmental, social, and governance factors alongside financial performance. This approach has gained popularity in recent years as investors seek to align their portfolios with their values.
However, BlackRock’s ESG strategy has drawn criticism for its lack of transparency and potential conflicts of interest. Critics argue that while the company promotes its commitment to ESG principles, it continues to hold investments in companies that do not align with these values. This discrepancy has raised concerns about greenwashing, the practice of misleading investors about a company’s environmental credentials.
Tennessee’s legal action against BlackRock alleges that the company’s ESG practices are deceptive and in violation of consumer protection laws. The lawsuit claims that BlackRock has misled investors by failing to fully disclose its ESG strategy and the potential risks associated with it. Additionally, it asserts that BlackRock’s advertising of its ESG offerings is misleading, leading investors to believe that their investments are solely focused on sustainable and ethical practices.
This lawsuit marks a significant development in the ongoing debate about the accountability and transparency of ESG investing. As the popularity of ESG strategies continues to grow, regulators and investors are scrutinizing the practices of asset managers to ensure that they are genuinely aligned with their stated ESG objectives.
BlackRock’s response to the lawsuit remains to be seen. The company has defended its ESG practices in the past, stating that it takes its responsibility as a fiduciary seriously and is committed to providing quality investment options to its clients. However, this legal challenge will undoubtedly add pressure on BlackRock to further clarify its ESG approach and address any concerns raised by regulators and investors.
In conclusion, Tennessee’s lawsuit against BlackRock over alleged deceptive ESG practices has put the spotlight on the asset manager’s ESG strategies and raised questions about its transparency and commitment to sustainable investing. As ESG investing continues to gain traction, it is crucial for investors and regulators to hold companies accountable for their ESG claims and ensure that they are delivering on their promises.
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