Tennessee AG Sues BlackRock Using Unprecedented Consumer Protection Claims Focused on ESG Considerations

On Monday, December 18, Tennessee Attorney General Jonathan Skrmetti filed a consumer protection lawsuit against BlackRock, Inc., a large, worldwide asset manager.  The lawsuit alleges that BlackRock made false or misleading representations to Tennessean consumers regarding the extent to which Environmental, Social, and Governance (“ESG”) considerations affect BlackRock’s investment strategies in violation of Tennessee’s consumer protection law.  The suit boils down to BlackRock allegedly holding (and advertising) two inconsistent positions, which arguably leads to consumer confusion and misconception.  The first position is that BlackRock necessarily focuses on maximizing a return for its investors.  The second, a focus on minimizing environmental impact, Attorney General Skrmetti argues conflicts directly with the goal of maximizing profitable return.  The lawsuit argues that BlackRock has violated Tennessee’s consumer protection law by both greenwashing and greenhushing.

In a statement, Attorney General Skrmetti said “[s]ome 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.” BlackRock vigorously rejects the claims and promised to contest all accusations in a public statement.

The lawsuit is the next, and most aggressive to date, step in the ongoing partisan debate among public enforcement officials, namely state attorneys general, regarding the corporate focus on ESG-related issues.  The complaint addresses BlackRock’s allegedly conflicting positions regarding the influence of ESG-related considerations over BlackRock’s business decisions across its assets.  Attorney General Skrmetti asserts that BlackRock downplays the extent to which such ESG-related considerations drive investment strategies.  BlackRock manages over nine trillion dollars in investments and the complaint suggests that BlackRock’s competing commitments have mislead consumers in the management of their investments.

The complaint discusses BlackRock’s focus on ESG-related commitments.  For example, the use of corporate engagement and the voting of its shares to achieve various climate-related policy goals.  BlackRock’s corporate engagement has included joining ESG-related coalitions such as the Net Zero Asset Managers Initiative and Climate Action 100+.  Membership in these coalitions requires companies to agree to climate change related goals, such as achieving specific emissions reduction targets.  These agreed-upon goals include lobbying, shareholder proposals, and corporate strategies aimed at achieving net zero carbon emissions by 2050.  But, the complaint alleges that BlackRock has both “falsely conveyed that certain of its funds do not incorporate ESG considerations” and “overstated the extent to which its ESG aims bear on companies’ financial positioning and performance.”

Earlier this year, on March 30, 2023, twenty-one Republican Attorneys General[1] issued a twenty-one-page letter addressed to over 50 asset managers (the “Letter”).  This Letter cited concerns that the asset managers may be misguidedly focusing on ESG-related objectives and reminded the asset managers of their extensive legal duties as fiduciaries under federal and state law.  The Letter stated “[t]he 2023 proxy season will present multiple occasions on which asset managers will have to choose between their legal duties to focus on financial return and the policy goals of ESG activists.” The Letter also specifically mentioned the Net Zero Asset Managers Initiative and Climate Action 100+ ESG-related coalitions that some asset managers had joined.  The Letter also briefly addressed antitrust concerns, but Attorney General Skrmetti only invoked the state’s unfair and deceptive practices statute for the present case.  The Letter was led by Montana, Louisiana, and Utah, but notably none of the states that led the effort, or that signed on to the letter, joined Tennessee in this lawsuit. 

Given the ESG-related backlash, in June, Larry Fink, BlackRock’s CEO, made public statements to distance BlackRock from the ESG debate and asserted that the term ESG has become too politicized.  This October, in further public statements, Fink stated “everything we do is on behalf of our clients, and everything we do is with the purpose of financial returns” when discussing ESG-related choices. Even though BlackRock attempted to distance itself from the ESG debate, BlackRock remained a member of the ESG coalitions mentioned above and presumptively has maintained its efforts to achieve the related goals.  BlackRock, likely similar to many other corporations, attempted to stay committed to goals that shareholders and consumers alike may desire and perceive value in, while also attempting to avoid the ire of conservative state attorneys general in the ongoing public debate.  However, Attorney General Skrmetti has capitalized on this precise confluence of mixed messaging.

The complaint alleges that BlackRock’s ESG-related consumer deception violates the Tennessee Consumer Protection Act (Tenn. Code Ann. § 47-18-104(a), (b)(27)).[2]  Attorney General Skrmetti alleges that “BlackRock has engaged in a series of unlawful ESG-related misrepresentations and omissions in connection with the marketing or sale of its investment products and services to Tennessee consumers.”  The complaint seeks injunctive relief, civil penalties, disgorgement, restitution for consumers, and recoupment of attorneys’ fees. 

Although the prior statements by conservative attorneys general certainly threatened legal action, this is an unprecedented claim brought against a company for its ESG-related efforts.  But, we should note that the lawsuit does not broadly condemn ESG efforts.  The lawsuit is based on the allegation that there is mixed-messaging to consumers, which may lead to consumer confusion.  BlackRock’s corporate identity as an asset manager, as opposed to another type of corporation, also was a focus of the complaint.  Lastly, and as stated above, only Attorney General Skrmetti brought the lawsuit, while 21 attorneys general signed the March 30 Letter.  False advertising or consumer deception lawsuits based on ESG-related claims will continue to be an area to watch in the coming year.