BlackRock, the world’s largest asset manager, has reached a settlement with Tennessee Attorney General (AG) Jonathan Skrmetti, agreeing to enhance its disclosure practices regarding sustainable investment factors.
The agreement, announced on Friday, requires BlackRock to provide more detailed and frequent reports on its use of ESG factors in investment decisions. The New York-based firm, which manages approximately $11.6 trillion in assets, will now disclose quarterly voting activity and explain proxy votes cast by non-ESG funds that go against management recommendations on environmental or social matters.
The settlement follows a lawsuit filed by Skrmetti in late 2023, alleging that BlackRock failed to adequately disclose its use of ESG factors and overstated their financial benefits. While BlackRock admitted no wrongdoing and faced no fines, Skrmetti described the agreement as a pivotal moment in the ongoing debate over ESG investing.
“BlackRock was at the centre of this as the largest asset manager in the world, and their willingness to settle demonstrates the waning influence of ESG investing,” Skrmetti said in an interview. He noted that BlackRock’s recent decision to leave an investor climate group helped expedite the resolution.
BlackRock welcomed the settlement, stating, “We have consistently acted in the best interests of our clients and are pleased to provide even greater transparency about our practices.” The company already shares much of the required information on its website but agreed to formalise these disclosures to create what Skrmetti called a “comprehensive compliance regime.”
ESG investing, once a booming sector, has faced mounting challenges in recent years. The war in Ukraine and subsequent energy price surges highlighted the financial vulnerabilities of ESG funds, which often avoid fossil fuel investments. As a result, investor enthusiasm for ESG has waned.
Simultaneously, Republican leaders, many from energy-producing states, have ramped up their criticism of asset managers like BlackRock, Vanguard, and State Street. They argue that ESG policies harm traditional energy industries and inflate financial risks. Larry Fink, BlackRock’s CEO, acknowledged in 2023 that the term ESG had become too politicised, prompting the firm to distance itself from the label.
The Tennessee settlement reflects broader political and economic pressures reshaping ESG investing. BlackRock’s decision to formalise its disclosure practices is seen as a response to both market realities and regulatory scrutiny.
Multilateral efforts to redefine sustainable investing are likely to intensify as governments and firms grapple with balancing financial performance, energy security, and climate goals. Experts suggest that increased transparency, as exemplified by BlackRock’s agreement, could help rebuild trust in ESG strategies.
