BlackRock Settles ESG Disclosure Dispute with Tennessee Attorney General

BlackRock, the world’s largest asset manager with $11.6 trillion under management, has reached a settlement with Tennessee Attorney General Jonathan Skrmetti over its use of sustainable-investment factors. The agreement includes enhanced disclosure requirements but no admission of wrongdoing or financial penalties, according to Skrmetti’s office.

The settlement reflects a growing backlash against environmental, social, and governance (ESG) practices, particularly among Republican politicians. Skrmetti filed the lawsuit in late 2023, alleging BlackRock failed to adequately disclose its ESG practices and overstated their financial benefits. Skrmetti described the agreement as a turning point, signaling “the end of the ESG moment.”

As part of the settlement, BlackRock will provide quarterly rather than annual updates on its voting activities and offer rationales for proxy votes against management on environmental or social matters, even for non-ESG funds. The firm stated it has always prioritized client interests and welcomed the chance to enhance transparency.

BlackRock’s exit from an investor climate group earlier this month further underscored its shift away from ESG-focused measures. Critics of ESG investing, often from energy-producing states, have heightened pressure on major asset managers like Vanguard and State Street.

The ESG trend has waned in recent years, influenced by geopolitical and economic factors. Russia's invasion of Ukraine drove up energy prices, impacting the performance of technology-heavy ESG funds that tend to exclude fossil fuel stocks. Meanwhile, BlackRock CEO Larry Fink announced in 2023 that he no longer uses the term ESG due to its politicization.

This settlement represents a broader trend of asset managers balancing sustainable practices with mounting political and economic pressures, reshaping the future of ESG investing.