Tennessee sues BlackRock in first-of-its-kind ESG lawsuit

FIRST ON FOX: The State of Tennessee is suing BlackRock, the world's largest financial asset manager, in a first-of-its-kind lawsuit alleging the firm has harmed consumers through its environmental commitments and climate strategy.

According to the lawsuit filed in state court Monday and first obtained by FOX Business, BlackRock has articulated two inconsistent positions: one prioritizing financial returns and the other prioritizing investment policies to combat climate change. While BlackRock has faced widespread opposition over its so-called environmental, social and governance (ESG) strategy, Tennessee's action on Monday is the first legal challenge to accuse BlackRock of violating consumer protection laws.

"We allege that BlackRock’s inconsistent statements about its investment strategies deprived consumers of the ability to make an informed choice," Tennessee Attorney General Jonathan Skrmetti told FOX Business in a statement.

"Some public statements show a company that focuses exclusively on return on investment, others show a company that gives special consideration to environmental factors," he continued. "Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly."

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Over the last two years, Republican state attorneys general and state financial officers have loudly criticized BlackRock, which manages a staggering $9.1 trillion worldwide, over its ESG policies, which officials have said amount to the firm using its financial power to force companies into adopting certain policies. 

Critics have specifically argued that ESG-focused asset managers like BlackRock are sidestepping their legally-mandated fiduciary duty to consider the well-being of clients whose money they manage. Promoting climate policies may lead to worse financial performance given the high profitability of fossil fuel industry, according to officials.

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"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."

"Yet for years, BlackRock has misled consumers about the scope and effects of its widespread ESG activity," it adds. "BlackRock’s conduct concerning the marketing or sale of its investment products and services constitutes deceptive acts and practices under the Tennessee Consumer Protection Act."

The lawsuit notes that BlackRock in recent years has joined activist organizations — namely the Net Zero Asset Managers initiative and Climate Action 100+ — which require member companies and groups to make certain climate commitments. 

The Net Zero Asset Managers initiative states on its website that it "aims to galvanize the asset management industry to commit to a goal of net zero emissions in order to mitigate financial risk and to maximize long-term value of assets." And Climate Action 100+ identifies itself as "an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change."

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"We reject the Attorney General’s claims and will vigorously contest any accusations that BlackRock violated Tennessee’s consumer protection laws," a BlackRock spokesperson told FOX Business. "Contrary to the Attorney General’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting."

"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. We are proud of our contribution and committed to the future in Tennessee," the statement continued.

In addition, the lawsuit highlights that BlackRock CEO Larry Fink has publicly stated that his firm asks companies it holds investments in to set greenhouse-gas-reduction targets, which it polices through voting and engagement. 

Fink, though, attempted to walk back his prior ESG commitments earlier this year after multiple states moved to pull billions of dollars in state pensions managed by BlackRock. Fink said during an event in June that he was "ashamed of being part of this conversation."

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"Attorney General Skrmetti is protecting consumers and calling out deception from asset management firms turned tyrants like BlackRock and its CEO Larry Fink who are attempting to foist a political agenda on the people of Tennessee and all Americans," said Will Hild, the executive director of Consumers' Research, a right-leaning consumer advocacy group. 

"Larry Fink has been forgoing his fiduciary duty by taking consumers’ money and using it for Leftist causes such as ESG and arbitrary net-zero goals for far too long," Hild told FOX Business. "This lawsuit is taking the fight directly to Larry Fink and BlackRock to let them know these policies will not be tolerated. I applaud his commitment in protecting Tennesseans, and Consumers' Research will continue to support actions that push back on ESG policies that do much more harm than good."