BlackRock sued by Tennessee over ESG strategies

Stay informed with free updates

Simply sign up to the ESG investing myFT Digest — delivered directly to your inbox.

BlackRock on Monday was sued by the US state of Tennessee, which accused the $9.1tn New York-based asset manager of violating consumer protection laws by misusing environmental, social and governance factors in its investment strategy.

The lawsuit filed in state court by Tennessee attorney-general Jonathan Skrmetti alleged that BlackRock had been inconsistent in stating whether it focused exclusively on investment returns or whether it gave preference to ESG considerations.

“For years . . . BlackRock has misled consumers about the scope and effects of its widespread ESG activity,” the complaint said. The lawsuit goes on to claim that “BlackRock has downplayed the extent to which ESG considerations drive its investment strategies across all holdings, even in non-ESG funds” and “overstated the extent to which ESG considerations can affect companies’ financial performance and outlook”.

It is the latest salvo in a campaign waged by Republican state financial officers against ESG investing generally and against BlackRock specifically. It follows BlackRock’s declining support for ESG-focused shareholder proposals and chief executive Larry Fink’s decision to stop using the term “ESG” on the grounds that it had been “weaponised” by politicians both conservative and liberal.

“Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly,” Skrmetti, a Republican, said in a statement. Fox Business first reported on the civil lawsuit.

“We reject the attorney-general’s claims and will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws,” BlackRock said in a statement. “Contrary to the attorney-general’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting.”

Officials in Texas, Florida, South Carolina and other Republican states previously pulled assets from BlackRock and have targeted the firm for divestment after concluding that its use of ESG considerations amount to a boycott of fossil fuels.

BlackRock, which is among more than 300 asset managers who have joined the Net Zero Asset Managers initiative, has repeatedly pushed back on that contention. In late 2022, after it was placed on a list of financial firms boycotting fossil fuel companies in Texas, BlackRock said it had invested more than $100bn in Texas energy companies, notably ExxonMobil.

Meanwhile, BlackRock also has been the target of pressure from the left. The New York City comptroller, Brad Lander, has accused it of giving in to an anti-ESG pressure campaign he has called “misinformed and shortsighted”.

Tennessee’s lawsuit noted that the firm “appears to have settled on a strategy of telling both sides what they wanted to hear, in an effort to keep everyone’s business”.