BlackRock lawsuit recognises the importance of ESG in the US

What can we learn from BlackRock’s lawsuit—claims of misinformation in environmental, social and governance (ESG) investing by the global asset manager

Environmental, social and governance (ESG) made its way into the investment landscape as a means of influencing companies to do their part in order to receive adequate funding for growth. The idea being that corporations see the requirement for ESG reports in their investment proposals and have very little choice but to incorporate more insights to share how they act upon their carbon footprints, and encourage social engagements. When it comes to asset management, organisations like BlackRock are the gateway to sustainable investments for thousands of consumers and clarity of information is key to not only meet climate targets, but also provide customers with informed decision-making opportunities when it comes to their money. 

The first mainstream mention of the term ‘ESG’ was present in a 2004 report from the United Nations (UN) and has since become a cornerstone of business growth, accelerating over the past decade. It seems the term is sometimes used interchangeably with ‘sustainability’, which still contain their own nuances. 

Just to reiterate, sustainability focuses on environmental, social and economical practices, ensuring that climate action is taken, communities receive adequate support, all without compromising the economy and leaving room to grow. 

However, ESG is the buzzword among investors and now makes up a significant part of their criteria for new investments and BlackRock touted this through many regimes and is part of a number of actioning groups as a result, including the Net Zero Asset Managers Initiatives (NZAM) and the Climate Action 100+ (CA100+). 

Association with these groups can be seen as a great step in the right direction, but it's within the company's actions that we must assess its commitments to the cause. The unfortunate news of a lawsuit imposed by the state of Tennessee suggests that adequate actions haven’t been taken to ensure compliance with the commitments made by the multinational investment firm.

The company came under scrutiny for deceiving consumers about its commitment to fulfilling its ESG goals. As a result, the firm undergoes a consumer protection lawsuit that will focus on the corporate engagement and proxy voting to generate necessary growth in climate-related areas. The consumer protection lawsuit will be built around information and the state of Tennessee claims BlackRock deprived consumers of decision-making power through inconsistent statements relating to ESG. The grey area comes as some of its statements are focused on supporting sustainable actions while others position the firm with a focus on return on investment (ROI). 

The fine line between ESG and finance 

There seems to be a very fine line between finance and ESG in the corporate world. Under ‘sustainability’ terminology, this is the battle of environment and community impact against the economic benefits required to survive in the near term. 

The question that arises from the lawsuit: How do investors and organisations balance responsible business with profitable business?

Even through consumer investments, the responsibility placed on asset managers is to ensure returns for their customers. The difficulty comes when ESG is embedded in the mix and their funds are subject to corporate sustainability and that of their providers (in this case BlackRock). 

While the events unfold, BlackRock reiterated this year that sustainability is a key component of its investment strategy and will continue to share this through “climate and natural capital” as well as other social engagements.

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