The next round of the ESG fight should start in Congress, not in court


In 2023, during state legislative sessions, approximately 165 bills were framed around using environmental, social and governance (ESG) investment criteria. Such bills will likely continue to be presented in state legislative sessions this year, but the new trend is to take this issue to the courtroom. 

Before the holidays, Tennessee Attorney General Jonathan Skrmetti (R) announced a “first-of-its-kind” consumer lawsuit against BlackRock. While the allegations in this lawsuit ostensibly aim to make the company more accountable to the public, it may unintentionally hurt consumers instead. 

The lawsuit alleges BlackRock made false or misleading representations to Tennessee consumers about the extent to which ESG considerations affect their investment strategies. It references BlackRock’s membership in organizations such as the Net Zero Asset Managers Initiatives and Climate Action 100+

If successful, this lawsuit will undoubtedly result in higher costs for end investors, potentially harming returns for thousands of retired Tennesseans. 

Securities laws already impose a fiduciary duty on all asset managers, which includes managing funds consistent with the investment objective in the best interests of their clients. The evolution of Climate Action 100+ and its “second phase,” which advocates for active ownership by its signatories, could, however, run contrary to those securities laws and managers’ fiduciary duty to their clients. 

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