The state of Indiana issued a cease-and-desist order against BlackRock Thursday for alleged securities fraud tied to the asset manager’s range of environmental, social, and governance investment products.
Indiana Secretary of State Diego Morales (R) is accusing BlackRock of misleading investors about its efforts to push ESG goals onto portfolio companies and the long-term financial performance of its ESG products.
“Investment companies that engage in fraudulent activities not only betray the trust of their clients but undermine the integrity of our financial markets,” Morales said.
“My office is committed to rigorously enforcing the law and strengthening our regulatory frameworks to ensure Hoosier investors are protected and that those who exploit the system are held accountable.”
The firm has committed to leveraging its assets to push for certain ESG policies such as net-zero carbon emissions, despite claiming its non-ESG funds do not follow ESG investment guidelines, Morales’s office alleges.
ESG investment products typically involve corporations using their assets or altering products to achieve progressive goals. BlackRock, the world’s largest asset manager, has faced increased scrutiny from Republican officeholders because of its ESG offerings.
“Today’s action by Mr. Morales is a politically motivated attack that completely mischaracterizes BlackRock’s approach to investing,” BlackRock told National Review in a statement.
“We are only focused on helping hundreds of thousands of Hoosier clients achieve their investment goals. We intend to defend ourselves and our clients against this arbitrary use of state power.”
Indiana becomes the second Republican-led state after Mississippi to issue a cease-and-desist order against BlackRock for alleged investment fraud related to its ESG offerings. Mississippi secretary of state Michael Watson (R) similarly accused BlackRock of misleading investors about its environmental investing goals and efforts to push ESG onto portfolio companies.
BlackRock voted in 7 percent of ESG-related shareholder proposals last year, according to a company report on its proxy votes. The most high-profile instance of BlackRock’s ESG activism over the past few years took place when the firm opposed the addition of two directors to Exxon’s board to protest the oil giant’s lack of climate directives.
In response to BlackRock’s perceived hostility to the oil and gas industry, the Texas Board of Education divested $8.5 billion from BlackRock in March, to comply with a state law barring investment in financial services firms that boycott oil and gas companies.
Larry Fink, the longtime CEO of BlackRock, is an outspoken environmentalist, and in 2020 he announced that sustainable investments would be at the core of BlackRock’s investment strategy. By 2030, BlackRock expects 75 percent of its portfolio companies to have a plan to become net-zero by 2050, although BlackRock acknowledges that its role as a money manager is not to engineer such outcomes.
“BlackRock’s role in the transition is as a fiduciary to our clients. Our role is to help them navigate investment risks and opportunities, not to engineer a specific decarbonization outcome in the real economy. The money we manage is not our own – it belongs to our clients, many of whom make their own asset allocation and portfolio construction decisions,” the firms said in a statement on its net-zero approach.
BlackRock is a member of the Net Zero Asset Managers Initiative (NZAMI), a multi-trillion dollar global climate investment coalition. In February, BlackRock withdrew from another international climate investment organization and delegated membership to a smaller subsidiary.
“Larry Fink’s ESG fraud is catching up with him. First Mississippi and now Indiana have issued cease and desist orders to BlackRock for committing fraud and lying to its customers about whether or not their money was being used to push ESG,” said Will Hild, a consumer advocate and critic of BlackRock.
“Secretary of State Morales is doing the right thing. He’s protecting his constituents from Fink’s unscrupulous business practices, and Indiana will be better for it. I hope more states follow his lead.”