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The Attorneys General of 19 states sent a new letter to the world’s largest investment management firm BlackRock, making accusations that “BlackRock’s actions on a variety of governance objectives may violate multiple state laws.” The states signing the letter are Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Ohio, South Carolina, Texas, West Virginia and Utah.

The letter takes a forceful tone from the start:

Based on the facts currently available to us, BlackRock appears to use the hard-earned money of our states’ citizens to circumvent the best possible return on investment, as well as their vote. BlackRock’s past public commitments indicate that it has used citizens’ assets to pressure companies to comply with international agreements such as the Paris Agreement that force the phase-out of fossil fuels, increase energy prices, drive inflation, and weaken the national security of the United States. These agreements have never been ratified by the United States Senate. The Senators elected by the citizens of this country determine which international agreements have the force of law, not BlackRock. We have several additional concerns that fall under our jurisdictional authority as attorneys general.

Among the specific points the letter brings forward:

  • BlackRock lacks neutrality with regard to energy investment decisions: “Rather than being a spectator betting on the game, BlackRock appears to have put on a quarterback jersey and actively taken the field. As a firm, BlackRock has committed to implementing an ESG engagement and voting strategy across all assets under management, and held over 2,300 company engagements on climate, the most of any category of engagement.”
  • BlackRock excludes financial return in company engagements: “Under our state laws, the desired ‘dialogue’ regarding any potential energy transition would be how to maximize financial returns, which would potentially include the opportunistic purchasing of fossil fuel assets discarded by companies seeking to meet net zero commitments. However, any discussion of purchasing such assets to maximize returns is conspicuously absent from GFANZ or Climate Action 100+.”
  • BlackRock’s duty to its clients should be focused on financial returns: “The stated reasons for your actions around promoting net zero, the Paris Agreement, or taking action on climate change indicate rampant violations of this duty, otherwise known as acting with ‘mixed motives.'”
  • BlackRock has violated its duty of care: “BlackRock’s belief that the world will require net zero by 2050 could be a pretext to force companies to adopt your preferred climate policies. This would not be the first time that a fiduciary claimed unsupported assumptions as the basis for its actions. For this reason, many of our states require a fiduciary to ‘make a reasonable effort to verify facts relevant to the investment.’ BlackRock’s past failure to predict fossil fuel demand warrants caution regarding its enforcement of net zero policies on portfolio companies.”
  • Antitrust concerns: “BlackRock’s coordinated conduct with other financial institutions to impose net-zero also raises antitrust concerns… These antitrust concerns are especially acute because BlackRock and other asset managers affirmatively tout their market dominance.” 
  • BlackRock is “boycotting energy companies” under state laws: “Many of our states have adopted legislation prohibiting energy company boycotts, and others will likely join them. Your letter was written in response to accusations that BlackRock may have violated one of these laws. In response to these accusations, Mr. McCombe stated: ‘BlackRock does not have any policies prohibiting or restricting investment in companies because they are energy companies.’ As you may know, the definition of an energy boycott includes actions to penalize companies for failing to meet emissions standards beyond what is required by relevant law. In a document entitled, ‘Our Approach to Sustainability,’ you detail numerous votes against companies for failing to meet disclosure standards that are not required by law.”

Our view: Regardless of where you stand on this issue, the letter is excellent reading. Some of the AGs attacks are at their base really about how companies in which BlackRock invests demonstrate the financial value of ESG (or how they don’t make that demonstration) – and perhaps how BlackRock itself does so. Linking ESG to financial values and returns can be problematic, especially when the focus is on “sprinkling ESG fairy dust on shares,” which has been the bulk of past efforts by the majority of companies (I wrote extensively about this in Killing Sustainability). members have exclusive access to several Guidebooks and checklists to help companies improve how to quantify and communicate the financial value of ESG initiatives in a practical and meaningful way.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile