Dive Brief:
- Mississippi Secretary of State Michael Watson sent BlackRock a cease and desist order Tuesday, alleging that the firm has made “untrue and misleading statements” regarding both its ESG and non-ESG funds.
- The state said BlackRock’s offerings marketed as non-ESG funds are misleading because the firm has committed to use all assets under its management to work towards reducing carbon emissions to net-zero, as a member of the Net Zero Asset Manager Alliance. Watson’s office argued that BlackRock's ESG funds were misleading because the firm said ESG can drive positive financial outcomes for investors, which Watson’s office disputes.
- The order warns the world’s largest asset manager to stop offering securities in or from Mississippi and stop “from making fraudulent statements, omissions and other misrepresentations.” BlackRock CEO Larry Fink said in his annual letter to investors released the same day that the firm would continue to focus on energy infrastructure to support both the energy transition and “energy security” this year.
Dive Insight:
Mississippi becomes the latest state to join an anti-ESG campaign against the asset manager. BlackRock has already been banned from working with four states in reaction to bills targeting firms that “boycott” fossil fuels, tobacco or firearms.
Watson’s office said the state’s Securities Division “has uncovered thousands of potential violations and will continue to investigate” before issuing any administrative penalties. Under Mississippi securities laws, BlackRock could face a $25,000 penalty for each charged violation, which Watson’s office said could amount to a “multimillion-dollar penalty.”
"Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means,” Watson said in the release. “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."
The Magnolia State said while BlackRock’s non-ESG marketed funds claim not to follow an investment strategy based around environmental, social and governance principles, the firm’s commitments as part of the United Nations-backed NZAM and Climate Action 100+ may contradict these. BlackRock recently transferred its Climate Action 100+ membership to a smaller international arm of its business, as JPMorgan Chase and StateStreet exited the coalition entirely.
The Texas Permanent School Fund announced earlier this month it would divest $8.5 billion from the firm over its fossil fuel stance. A BlackRock spokesperson previously told ESG Dive the divestment of funds “jeopardizes Texas schools and families” and “ignores [the firm’s] $120 billion investment in Texas public energy companies.” Meanwhile, the firm’s fund directors were also the subject of probes by Republican attorneys general over its climate coalition commitments.
BlackRock said in its annual 10-K filing to the Securities and Exchange Commission that the firm is facing additional regulatory scrutiny and uncertainty due to the domestic and international proliferation of ESG-related legislation and regulations. The firm admitted that its revenues could be affected by the mounting focus on ESG — from both those for and against the integration of those factors into investment decisions.
Fink and his firm have turned toward supporting energy infrastructure as part of its strategy for the year; kicking off with a $12.5 billion acquisition of Global Infrastructure Partners. In his letter to investors, Fink said the energy transition is a “mega force” and “a major way to address climate change” that is “creating both risks and opportunities for investors.” However, he added that Russia’s invasion of Ukraine has required additional reliance on fossil fuels and inflated gas prices.
Fink said during his travels last year that power operators and politicians alike were talking about decarbonization and energy security under the banner of “energy pragmatism.”
“Even the most climate conscious among them saw that their long-term path to decarbonization will include hydrocarbons, albeit less of them, for some time to come,” Fink wrote. “The point is: The energy transition is not proceeding in a straight line.”
