‘Two Things That Can’t Both Be True’: Tennessee AG Sues BlackRock Over ESG Deception

(Daily Signal)—Tennessee Attorney General Jonathan Skrmetti on Monday sued the investment company BlackRock for deceptive practices.

“BlackRock has said two things that can’t both be true,” Skrmetti, a Republican, told The Daily Signal in an interview Monday. “The first is that they’re taking investors’ money and investing it purely for the purpose of maximizing the return on investment. But they’ve also put out statements saying that they’re committed to net-zero [carbon emissions to combat] climate change by certain dates.”

“They’ve made lots of statements about working to use all of the assets under their management to further the goal of reducing greenhouse gas emissions, and both of those can’t be true,” he added.

In the suit filed in Williamson County Circuit Court, Skrmetti alleges that BlackRock violates the Tennessee Consumer Protection Act by engaging in deceptive practices regarding its so-called environmental, social, and governance goals. BlackRock has helped lead the movement to force climate alarmism goals on companies in the name of ESG. These goals often involve pledging to alter business practices to decrease or offset carbon emissions in the name of helping the environment, even though science on carbon emissions destroying the climate is far from settled.

In 2020 and 2021, BlackRock joined the climate alarmism groups Climate Action 100+ and the Net Zero Asset Managers Initiative, committing to use the weight of all assets under management to advance many environmental, social, and governance goals and achieve net-zero carbon emissions by 2050.

Yet BlackRock operates many non-ESG funds, claiming that such funds “do not seek to follow a sustainable, impact, or ESG investment strategy.” The company further claims that there is “no indication” that non-ESG funds will adopt an ESG investment strategy.

Although BlackRock claims these funds don’t advance its ESG goals, it has adopted a companywide commitment to ESG goals and aggressively urged climate goals on other enterprises it invests in. As a shareholder in many other companies, BlackRock carries considerable weight and has pushed them to make climate-related commitments.

“BlackRock’s pledge as a member of [the climate groups] is to force companies to disclose targets for net-zero emissions for environmental and political reasons (limiting warming to well below 2°C), without regard to materiality to the particular company’s financial performance,” the lawsuit argues. “BlackRock makes no mention of this commitment to non-material factors when explaining its portfolio company disclosure expectations to fund investors.”

The lawsuit cites many instances where BlackRock used its influence over companies it invests in—including Chevron, United Airlines, and Walmart—to push climate-related shareholder proposals. Yet BlackRock claimed in a December 2022 statement responding to state attorneys general that the company doesn’t “dictate to companies what specific emission targets they should meet or what type of political lobbying they should pursue.”

BlackRock also claimed that its role “is to help [clients] navigate investment risks and opportunities, not to engineer a specific decarbonization outcome in the real economy.”

As for ESG funds, Skrmetti’s lawsuit cites this claim by BlackRock: “The global aspiration to achieve a net-zero global economy by 2050 is reflective of aggregated efforts; governments representing over 90% of GDP have committed to move to net-zero over the coming decades.”

However, only 15% of countries that have made a net-zero commitment have enshrined such commitments in law, and only 10% of global emissions would be covered by legally binding pledges, according to Tennessee’s lawsuit. The lawsuit lists 14 statements that BlackRock could have added as disclosures to make that statement less deceptive, such as noting that no country in the world has implemented policies that will prevent the world climate from increasing 1.5 degrees Celsius, according to the Climate Action Tracker.

BlackRock also has presented contradictory claims about whether ESG goals align with positive financial outcomes.

BlackRock has said that its “focus on climate risk and energy is about driving financial outcomes for clients,” but the company also has admitted that sustainability metrics “do not provide an indication of current or future performance nor do they represent the potential risk and reward profile of a fund.”

Contrary to BlackRock’s claims, ESG-guided funds don’t yield higher returns on investment, according to the lawsuit. It cites a 2019 study finding a “statistically significant negative relation between ESG investing and investor returns.”

“BlackRock’s acts and practices concerning the marketing or sale of products and services, as alleged herein, are deceptive to consumers and other persons in Tennessee,” the lawsuit states.

Skrmetti asks the circuit court to find that BlackRock violated the Tennessee Consumer Protection Act, that the court order BlackRock to cease making misrepresentations, that it order BlackRock to “restore the money or property lost as a result of the alleged violations of law,” and that it order BlackRock to give up its “ill-gotten gains.”

Skrmetti asks the court to fine BlackRock a civil penalty of $1,000 to Tennessee for each violation of the law, and that “all costs, including discretionary costs, in this case be taxed against BlackRock.”

BlackRock is the leading exchange-traded fund provider in the world, with $9.4 trillion in assets under management.

Although some states have passed laws to restrict the use of ESG goals in making investment decisions, Skrmetti’s lawsuit represents the first civil enforcement action against BlackRock for ESG deception.

“Ultimately, this is a case about the truth, and the biggest takeaway for me at the end of the day is we can get clarity for consumers,” Skrmetti told The Daily Signal in the interview. “If you’re going to make decisions about how companies should have to behave to do business, those are decisions that ultimately have to flow from the people, and this is part of, I think, a broader effort on the part of some elites to make sure that the American people don’t have that kind of oversight over their economy.”