Tennessee is suing BlackRock over alleged "deceptive acts and practices," a first-of-its-kind lawsuit that targets the private equity behemoth's Environmental, Social, and Corporate Governance (ESG) offerings, Republican attorney general Jonathan Skrmetti announced.
The suit, which Skrmetti filed to a Tennessee circuit court Monday, accuses BlackRock of making false or misleading representations to customers over its investment services. The financial giant, the suit claims, takes ESG considerations into account more than it advertises, hurting clients in the process. Under ESG, private equity providers such as BlackRock funnel money to companies that meet certain environmental and social criteria, instead of prioritizing financial returns alone.
"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," the suit states.
While BlackRock has faced criticism and regulatory action from Republicans over its ESG investment offerings, Skrmetti's suit marks the first legal challenge brought forth by an attorney general to accuse the company of violating consumer protection laws. If successful, the suit would compel BlackRock to pay 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, pledged to fight the suit. A BlackRock spokesperson in a statement sent to Fox Business said the company "will vigorously contest any accusations that BlackRock violated Tennessee's consumer protection laws" and "fully and accurately discloses our investment practices."
BlackRock’s website, Skrmetti's suit notes, claims in an advertisement for one of its investment options that the "fund does not seek to follow a sustainable, impact or ESG investment strategy." In 2021, however, BlackRock joined the Net Zero Asset Managers Initiative, a collective of investment providers whose members 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," the suit 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."