BlackRock, the world’s largest asset manager, settled a lawsuit last week with the state of Tennessee that alleged that it misled consumers regarding the influence of climate and social justice ideology in its decisions regarding investors’ money.
“BlackRock’s stringent obligations under this settlement ensure Tennesseans will not see their retirement funds used to support radical ideologies they oppose,” Tennessee Attorney General Jonathan Skrmetti told The Epoch Times.
Tennessee’s lawsuit, filed in 2023, alleged that BlackRock failed to adequately disclose the extent to which environmental, social, and governance (ESG) considerations affected its investing activities. The suit also alleged that BlackRock overstated the financial benefits of ESG-related strategies.
Because of the trillions of dollars that they manage on behalf of others, asset managers such as BlackRock, Vanguard, and State Street—often called the “Big Three”—as well as municipal pension funds such as CalPRS, CalSTRS, and New York City and state retirement funds, have tremendous leverage over companies whose shares they own.
According to a report in 2022 by Lucian A. Bebchuk of Harvard Law School and Scott Hirst of Boston University, “the Big Three collectively held a median stake of 21.9 percent in S&P 500 companies, which represented a proportion of 24.9 percent of the votes cast at the annual meetings of those companies.”
Skrmetti argued in his lawsuit that investors may not know or approve of how their money might have been leveraged to influence companies to support progressive causes.
According to the Jan. 13 settlement agreement with Tennessee, BlackRock agreed to engage with companies and cast proxy votes “solely to further the financial interests” of investors in its funds, with the exception of funds such as ESG funds that may have nonfinancial goals.
It also agreed to provide a quarterly disclosure of its relevant proxy votes and provide a rationale for instances in which it voted against company management on any environmental or social issues. Proxy votes are actions in which asset managers vote on behalf of their investors as corporate shareholders.
In addition, BlackRock agreed to disclose to investors any actions that could affect returns in accordance with Tennessee consumer protection laws, to disclose whether it is a member of climate clubs such as the Net Zero Asset Managers initiative (NZAMi), Ceres, and Climate Action 100+, and that, with the exception of funds that have nonfinancial investment objectives, to cast proxy votes solely to further the financial interests of investors.
BlackRock, which manages more than $11 trillion and has been an outspoken advocate of ESG and “sustainable” investing, dropped out of NZAMi on Jan. 9. The U.N.-sponsored climate organization suspended its activities several days later.
Many other asset managers have done the same, with six of the largest U.S. banks—Goldman Sachs, Citigroup, Wells Fargo, JPMorgan Chase, Bank of America, and Morgan Stanley—dropping out of the U.N.-sponsored Net-Zero Banking Alliance within weeks of President Donald Trump’s reelection.
Trump has pledged to undo ESG and DEI programs during his second term, and his administration during his first term barred asset managers of private Employee Retirement Income Security Act (ERISA) pension plans from employing anything other than pecuniary criteria when investing pensioners’ money. President Joe Biden overturned that directive in 2022, allowing ERISA fund managers to consider ESG criteria when investing retirement funds.
BlackRock also agreed to third-party audits to monitor compliance with the settlement. In return for these measures, Tennessee dismissed its lawsuit against BlackRock without prejudice.
“This resolution assures that the money Tennesseans invest with BlackRock is managed consistent with the funds’ disclosures,” Skrmetti said in a statement. “While investors are always free to buy cause-oriented products instead of focusing on maximum return, this settlement ensures that only investors who make a knowing choice will see their assets directed toward these non-financial goals.”
The Epoch Times reached out to BlackRock for comment but did not receive a response by publication time.
