The state of Mississippi is threatening to hit major financial asset manager BlackRock with a massive fine as part of a cease and desist order targeting the firm's ESG practices.
The state of Mississippi has issued a cease and desist order to trillion-dollar asset manager BlackRock, alleging the firm has committed fraud by misleading investors through its climate policies.
Late on Tuesday, Mississippi Secretary of State Michael Watson's office delivered the order and a notice of intent to impose an administrative penalty — which could amount to a first-of-its-kind multimillion-dollar fine — against BlackRock, an action targeting so-called environmental, social and governance (ESG) investing. Watson claims BlackRock has repeatedly misled Mississippi investors pertaining to its broader ESG agenda.
"Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means," Watson said in a statement shared with FOX Business. "All citizens should have the opportunity to make informed and educated decisions when investing their hard-earned money. If not, our office will hold these bad actors accountable."
In the order delivered to BlackRock, Watson takes aim at the firm related to its handling of non-ESG funds it manages. While BlackRock states those exchange-traded funds (ETF) and bond ETFs do not "seek to follow a sustainable, impact or ESG investment strategy," Watson argues those representations are false or misleading because they run contrary to BlackRock’s public ESG commitments.
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He particularly points to BlackRock's repeated engagement in sustainable and ESG investment strategies. For example, the New York firm is a signatory of the Net Zero Asset Managers (NZAM) initiative, which was founded in 2020 to support the asset management industry to commit to a goal of net-zero emissions.
"BlackRock’s climate-disclosure reports demonstrate that BlackRock is actively working to fulfill its NZAM obligations by implementing a ‘sustainable' net-zero investment strategy across ‘all assets under management,’" Watson's order states.
"BlackRock’s NZAM commitment demonstrates that it is presently ‘seek[ing] to follow’ across all assets under management ‘a sustainable, impact or ESG investment strategy … For the same reasons, BlackRock’s NZAM commitment provides a clear ’indication' that such a strategy ‘will be adopted’ by all of BlackRock’s funds (that is, ‘all assets under management’) in the future. Accordingly, BlackRock’s statements are to the contrary."
On its website, NZAM acknowledges that commitments made by signatories like BlackRock depend "on the mandates agreed with clients and clients’ and managers’ regulatory environments."
Watson's order adds that BlackRock has been a signatory of Climate Action 100+ alliance, which was formed by the United Nations to combat global warming through corporate sustainability agreements. As part of its membership, the firm agreed to "support the Paris Agreement and the need for the world to transition to a lower carbon economy."
According to Watson, BlackRock's statements that its non-ESG funds do not factor in sustainability and climate concerns "is inconsistent with BlackRock’s expansive ESG commitments to CA100+."
BlackRock notably withdrew its U.S. business from Climate Action 100+ recently, shifting involvement in the alliance to its smaller international entity where a majority of clients are already pursuing decarbonization goals.
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Watson also alleged that BlackRock had made deceptive statements about its ESG-focused funds. He said the asset manager markets its ESG strategy as financially beneficial when it has admitted elsewhere that those funds do not perform better than alternatives.
"BlackRock made untrue statements that certain of its funds do not incorporate ESG considerations," the Mississippi order reads. "As detailed extensively in this order, BlackRock stated on multiple occasions either expressly through publications or by action that the company does in fact incorporate ESG considerations into its non-ESG funds."
Watson said BlackRock's alleged behavior as outlined in the order constitutes a violation of Mississippi's general fraud statute.
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In a statement to FOX Business, BlackRock blasted Mississippi's order, saying it was committed to following the law in "every respect."
"Many policymakers and government officials have ideas on how we should invest our clients’ assets," the firm told FOX Business in a written statement.
"We are always bound to invest consistent with our clients’ choices, their best financial interests, and applicable law. Our only agenda is maximizing risk-adjusted returns for the funds our clients choose to invest in. We operate in one of the most highly regulated industries in the country and are committed to following the law in every respect."
However, Will Hild, the executive director of watchdog group Consumers Research, lauded the state's move, saying such actions could defeat ESG policies nationwide.
"This first-of-its-kind action made by Mississippi Secretary of State Watson is another huge blow to Larry Fink and his continued support of the Leftist ESG agenda," Hild told FOX Business in a statement. "Larry Fink and BlackRock continue to pretend that the only time they engage in ESG, it is with permission of the shareholders, but in reality, ESG policies have seeped into every facet of BlackRock's asset management."
"They've been lying to their customers, and states like Mississippi are not going to allow this to continue," he added. "Consumers’ Research will continue to support bold actions taken by state leaders to put an end to the misuse of assets by dishonest Wall Street fat cats like Larry Fink and BlackRock."
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Mississippi's action was first reported by Bloomberg on Wednesday morning.
This is a developing story. Please check back for updates.
