Titan asset manager BlackRock has gained a reputation for its embrace of Environmental, Social, and Governance (ESG) considerations in its investment strategies. 

While some states have elected to push back on BlackRock's methodologies by divesting their pension funds from the investment management firm, Tennessee is taking a novel approach: In a first-of-its-kind lawsuit filed Monday, Tennessee Attorney General Jonathan Skrmetti is suing BlackRock under the state's Consumer Protection Act, alleging that the firm's inconsistent and misleading statements regarding its investment strategies constitute deceptive practices and seeking both injunctive relief and civil damages.

As noted in the Civil Enforcement Complaint, BlackRock seems to be trying to have it both ways: While aggressively pushing ESG and committing to activist organizations like Climate Action 100+ and the Net Zero Asset Managers Initiative, the firm "marketed many of its funds as devoid of ESG considerations and has admitted that ESG aims — in particular, radically reducing portfolio companies' carbon output — 'do not provide an indication of current or future performance nor do they represent the potential risk and reward profile of a fund.'"

I had the opportunity to speak with Attorney General Skrmetti regarding the lawsuit on Monday afternoon. I asked him what prompted the filing. Skrmetti explained they've been concerned about ESG issues for a while and have been trying to get a better handle on how it is playing out through the state's economy. He added that a lot of people in Tennessee are concerned that their investments are being used for things with which they disagree. Ultimately, the goal of his office is to ensure that Tennessee investors are being given accurate information about the investment products they're being offered. 

I asked the attorney general about Tennessee's Consumer Protection Act and why it lends itself to the litigation. He indicated that the Act prohibits misleading trade practices. While many states have similar legislation, Tennessee has the added benefit of court precedent (Johnson v. John Hancock Funds) that holds the Act pertains to the marketing of securities. 

As noted above, the lawsuit is seeking injunctive relief, as well as a variety of monetary relief, including civil penalties and disgorgement. Attorney General Skrmetti emphasized that the point of the lawsuit is not about chasing money but rather about making sure people are getting the truth. While it is not clear at the moment how many Tennesseeans are invested in funds managed by BlackRock, given that the firm manages almost $10 trillion in assets, there are undoubtedly thousands of the state's residents who may be impacted by its policies. 

Given that the lawsuit is the first of its kind, I asked Skrmetti if he anticipates other states' attorneys general will pursue similar actions. He noted that there has been a lot of positive activity from Republican attorneys general, and while each state's options depend on their respective laws, they have collectively put letters out addressing the issue and expressing concerns over ESG-guided investment strategies. He confirmed that this is definitely not an area where Tennessee stands alone. As to whether Tennessee might also pursue divestment of its pension funds, Skrmetti said that's for the legislature and the folks managing the retirement fund to determine. His aim is to make the company behave appropriately and adhere to complete transparency, which ultimately will solve the problem more decisively. 

Observing that BlackRock is obviously a well-funded enterprise, I asked Attorney General Skrmetti how he expected they would respond to the litigation. He said he expects them to have an extraordinarily talented legal team working on the case and that they're likely to mount an aggressive defense to it. As for how long he expects it will take the litigation to play out, Skrmetti confirmed that it will take a while — there will undoubtedly be a lot of legal wrangling over the validity of the complaint, as well as discovery disputes. And, regardless of what ultimately happens with the case at the trial court level, there will assuredly be a series of appeals. 

I asked the attorney general what else he wants RedState's readers to know about the suit — and about the work his office is doing in general. Skrmetti observed: "This is our first big ESG case, but we’ve been really busy here in Tennessee, and I'm really proud of my team." He noted that they have ongoing suits against Meta and TikTok, they were involved in the Google anti-trust suit in Washington, D.C., and have been investigating the ticketing industry. They have taken on some very big entities and are trying to hold them accountable. Skrmetti added that while this may be the first big ESG case, it is consistent with their work this last year of taking on some really big adversaries and making sure they’re doing what they need to do under the law. 

Regarding the BlackRock matter, Skrmetti observed that, at heart, it's a very simple case. BlackRock may be a huge institution, but it can't simultaneously claim to be focusing exclusively on return on investment and prioritizing ESG considerations. Ultimately, this is about holding them accountable, ensuring that they are truthful about the products they are offering, and making sure that consumers are properly informed. 

Attorney General Skrmetti's office issued the following press release in conjunction with the suit filing: 

On Monday, Tennessee Attorney General Jonathan Skrmetti filed the first-of-its-kind consumer protection lawsuit against the world’s largest asset manager, BlackRock Inc. Tennessee’s complaint alleges that Blackrock made false or misleading representations to current and potential Tennessee consumers about the extent to which Environmental, Social, and Governance (ESG) considerations affect BlackRock’s investment strategies.

“We allege that BlackRock’s inconsistent statements about its investment strategies deprived consumers of the ability to make an informed choice,” Attorney General Jonathan Skrmetti said 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. Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly.”

Tennessee’s lawsuit is a response to BlackRock’s conflicting statements and assertions regarding ESG’s influence over BlackRock’s business decisions across its wide array of assets. Currently, BlackRock manages over nine trillion dollars in investments. The complaint addresses BlackRock’s use of corporate engagement and the voting of its shares to achieve various climate-related policy goals.

As part of its strategy, BlackRock joined ESG coalitions such as the Net Zero Asset Managers Initiative and Climate Action 100+. Membership in both groups is dependent upon companies, such as BlackRock, making specific promises aimed toward fighting climate change that affects all their clients’ assets and achieving specific emissions reduction targets. These promises include lobbying, engagement, voting on shareholder proposals, and managing assets with the goal of achieving “net zero” by 2050.

It should be noted that the firm explains many of its shareholder votes are intended to align companies with the aforementioned “net zero” goals. Yet BlackRock’s disclosures do not mention such promises. In fact, BlackRock has told consumers elsewhere that the only consideration driving its investment decisions is return on investment.

Thus, BlackRock has articulated two inconsistent positions: one focusing solely on money and the other focusing on environmental impact. Tennessee consumers deserve to know which of BlackRock’s statements are a true account of the company’s decision-making. This enforcement action seeks injunctive relief, civil penalties, and recoupment of the State’s costs.