An Alabama lawyer and economist said a recent lawsuit from the State of Tennessee against the financial titan BlackRock, Inc. over its environmental, social and governance (ESG) investment strategy could shed light on the massive asset management corporation.
Tennessee filed a lawsuit against BlackRock on Monday, alleging that the organization had violated consumer protection laws by prioritizing ESG metrics over return on investments.
BlackRock is an international asset management company worth over $100 billion. It is at the forefront of the ESG movement.
ESG scoring evaluates how a corporation aligns itself with social goals beyond earning a profit for its shareholders. These goals often include environmental sustainability, advocacy for specific social movements, and a company's commitment to "diversity, equity and inclusion" (DEI).
Organizations, such as MSCI, award ESG scores to corporations supposedly based on their adherence to ESG values. Some large banks and asset management groups, like BlackRock, use ESG ratings to choose where to direct capital.
Proponents of ESG argue that investors are responsible for extending their benefits beyond their stakeholders.
On the other hand, conservative critics have suggested ESG is driven by activism, equated it to China's social credit score system and argued that investments made with ESG scores are not as safe or profitable as investments made solely to make a profit for shareholders.
Executive director of Troy University's Manuel H. Johnson Center for Political Economy Allen Mendenhall is an outspoken critic of ESG. He suggested more could come from Tennessee's legal efforts to battle the corporation.
"Mounting allegations that BlackRock's ESG investment strategy has misled consumers and mismanaged funds have finally come to a head," Mendenhall told 1819 News. "At a minimum, this lawsuit may bring to light BlackRock's plans and practices that have hidden in the dark for too long."
After filing the lawsuit, Tennessee Attorney General Jonathan Skrmetti told FOX Business that BlackRock's statements about its investment strategies were inconsistent and that the company had "deprived consumers of the ability to make an informed choice."
Skrmetti said the company has insisted it focuses exclusively on returns on investment but also claimed to give special consideration to environmental issues.
The lawsuit accused BlackRock of joining activist organizations that require members to commit to particular climate objectives. These include organizations like the Net Zero Asset Managers Initiate and Climate Action 100+.
BlackRock denied Skrmetti's claims and insisted the organization accurately discloses investment practices.
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