This is the final post in our 2024 Year in Preview series examining important trends in white collar law and investigations in the coming year. Our previous post, "Enforcement of U.S. Trade Sanctions and Export Controls in 2023 and What to Expect In 2024," can be found here.

Politicians in Republican-led states have painted a target on environmental, social, and governance (ESG) principles being employed as a metric for investments. About one year ago, in March 2023, twenty-one Republican Attorneys General sent a letter to asset managers, including BlackRock, Inc., asserting breaches of their fiduciary duties and violations of antitrust law as a result of the asset managers’ ESG investing and participation in efforts to increase public company disclosure around the risks and impacts of climate change. 

Whatever the effectiveness of the AG attacks related to ESG in the political arena (the consideration of which is beyond the scope of this article), a recent consumer protection action filed by one of those Attorneys General – Tennessee Attorney General Jonathan Skrmetti – against Blackrock suggests that actually asserting those fiduciary breaches and antitrust violations may not be viable as a legal matter. 

In this article, we will examine the broad attacks set forth in the March 2023 Republican Attorneys General letter and compare them to the claims asserted in the Tennessee case against asset manager Blackrock, Inc. The Tennessee AG has pivoted to a consumer confusion claim based on what he contends are mixed messages about ESG investing, suggesting a future path for other state officials interested in pursuing actions against asset managers to follow. 

March 2023 Letter to Asset Managers
On March 30, 2023, 21 Republican Attorneys Generals sent a letter to over 50 U.S. asset managers, including BlackRock, Inc., putting forth several “concerns about the ongoing agreements between asset managers to use Americans’ savings to push political goals during the upcoming proxy season.” The letter targets the managers’ participation in efforts such as Net Zero Asset Managers (“NZAM”) and Climate Action 100+ (“CA100+”), which push for more detailed and consistent disclosures regarding greenhouse gas emissions and the risks posed by climate change for the benefit of investors. 

Essentially, the letter raises the following four categorical allegations: 

1. Asset managers participating in NZAM and CA100+ are in breach of their fiduciary duties of care and loyalty unless they disclose to investors that all of their funds are “ESG funds,” regardless of whether they are designed and marketed as such. 
2. Asset managers have failed to properly disclose the risks associated with funds marketed as ESG funds, because “ESG funds perform poorly,” while managers charge higher fees for managing those funds.
3. Asset managers who engage with companies to encourage them to disclose “non-material” climate change risks are breaching their fiduciary duty of loyalty because doing so will “destroy value and make companies and their investors worse off,” and these requests are being instigated by “radical ESG activists” with a “political agenda” and “routinely try to change company behavior through shareholder resolutions.”
4. Participation in NZAM and CA100+ may “unreasonably restrain trade and harm competition” in violation of antitrust law. 

Tennessee Lawsuit Against Blackrock
Of the twenty-one AGs who signed onto the March 2023 letter, to date, one has filed a legal action against an asset manager concerning ESG investing. On December 18, 2024, Tennessee Attorney General Jonathan Skrmetti brought a consumer protection action against BlackRock seeking injunctive relief, civil penalties, disgorgement, restitution, and costs. But while the March 2023 letter made sweeping allegations of breaches of fiduciary duty and violations of antitrust law, Skrmetti does not make those claims in his complaint. Instead, he alleges that BlackRock has confused Tennessee consumers by saying that it both seeks to maximize investment returns and focuses on minimizing environmental impact, which Skrmetti believes to be incompatible. The allegations in the Tennessee lawsuit boil down to an assertion of mixed messages by Blackrock which may lead to consumer confusion. Blackrock must file a response to the Tennessee complaint by May 17, 2024, which many will no doubt read with interest.

While Tennessee AG’s legal theory is a far cry from the allegations in the March 2023 letter, it suggests a pathway the other AGs who signed onto the March 2023 letter may follow. Montana Attorney General Austin Knudsen, joined by several other Attorneys General, has recently cited the allegations made in the Tennessee complaint as cause for continuing investigation into Blackrock, with potential additional enforcement activity to follow¹.  And Mississippi Secretary of State Michael Watson also issued a cease-and-desist order against BlackRock on March 27, 2024, mimicking in large part the consumer protection allegations raised in the Tennessee action². Claims of consumer deception in the ESG space will thus be an area to continue to watch as we move through 2024 and beyond.

 ¹ Press Release, Montana Attorney General, Attorney General Knudsen Investigating BlackRock’s ESG Policies, Conflicts Of Interest (Mar. 1, 2024), https://dojmt.gov/attorney-general-knudsen-investigating-blackrocks-esg-policies-conflicts-of-interest/; Letter from Austin Knudsen, Montana Attorney General, to BlackRock Fund Directors (Feb. 27, 2024), https://dojmt.gov/wp-content/uploads/Follow-up-letter-to-BlackRock-Directors-FINAL.pdf. 

 ² Press Release, Mississippi Secretary of State, Mississippi Secretary of State Issues Order Against BlackRock for Alleged Securities Fraud Related to ESG Investment Strategy with Possible Multimillion-dollar Penalty (Mar. 27, 2024), https://www.sos.ms.gov/press/mississippi-secretary-state-issues-order-against-blackrock-alleged-securities-fraud-related; Summary Cease and Desist Order and Notice of Intent to Impose Administrative Penalty, In re BlackRock Inc., et al., Admin. Order No. LS-24-6726 (Mar. 26, 2024). 
 

For the full series, please see: White Collar Year in Preview