BlackRock hit with ‘cease and desist’ after allegedly misleading investors about ESG practices

The order accuses BlackRock of repeatedly misleading Mississippi investors regarding its ESG practices, particularly concerning its non-ESG funds, such as exchange-traded funds (ETFs), which do not purport to follow a sustainable investment strategy.

According to Watson, BlackRock's representation that its non-ESG funds do not incorporate ESG considerations misleads investors by contradicting the company's broader ESG commitments.

“BlackRock made untrue statements that certain of its funds do not incorporate ESG considerations. As detailed extensively in this order, BlackRock stated on multiple occasions either expressly through publications or by action that the company does in fact incorporate ESG considerations into its non-ESG funds,” the order from Mississippi states.

“BlackRock made express and implied material misrepresentations and omissions about its investment strategies related to ESG,” the order continues. “As detailed extensively in this order, BlackRock has overstated the extent to which its ESG aims bear on companies’ financial performance and positioning. These statements lead investors to believe that BlackRock’s ESG provides a financial benefit to its ESG funds.”

Furthermore, the order points out BlackRock's participation in the Climate Action 100+ Alliance, a commitment to the Paris Agreement and carbon emissions reduction. Watson argues that BlackRock's defense that non-ESG funds do not consider climate change concerns contradicts its involvement in this initiative.

Notably, BlackRock recently withdrew from the Climate Action 100+ Alliance. The company’s Chairman and CEO, Larry Fink, has also expressed a reluctance to use the term “ESG” in the future due to its connotation.

The Cease and Desist Order points out that each misrepresentation BlackRock has performed is a violation of Mississippi's Securities Act. As the company has been uncovered to have conducted 'thousands of potential violations," BlackRock is facing tens of millions of dollars worth of fines.

"Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means,” said Secretary Watson in a press release.

The Cease and Desist Order comes at a time of growing scrutiny over the accuracy and transparency of ESG practices within the financial industry.