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Indiana Secretary of State Diego Morales sent a cease and desist letter on Thursday to BlackRock — the world’s largest asset manager — for alleged securities fraud, accusing the company of making “false and misleading statements” about their environmental, social or governance (ESG) funds and allocation focus.
Morales issued the letter via the Indiana Securities Division, an arm of the secretary of state’s office that’s tasked with regulating the securities industry. The letter is nearly identical to one issued by Mississippi Secretary of State Michael Watson in March.
The Indiana Securities Division alleges BlackRock, “through its assertions relating to ESG products and offerings, has repeatedly made false and misleading statements to Hoosier investors,” Morales said.
The company is accused by Morales of telling clients their financial prospects and outcomes would be better in the long run through ESG-backed funds. The secretary of state emphasized in his letter that there is “little to no evidence” to back that up, although Morales offers no evidence of his own to substantiate the allegations.
“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 Thursday in a written statement. “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.”
Morales alleges fraud
Morales said further that BlackRock, meanwhile, claims their funds that “are not marketed as ESG do not follow an ESG investment strategy.”
“However, BlackRock has issued several statements and actions in commitment of using all assets under its management to incorporate ESG considerations, including advancing the environmental goals of net zero carbon emissions,” Morales continued.
In a statement, a BlackRock representative told the Indiana Capital Chronicle Morales’ letter amounts to “a politically motivated attack that completely mischaracterizes BlackRock’s approach to investing.”
“We are only focused on helping hundreds of thousands of Hoosier clients achieve their investment goals.,” the statement continued. “We intend to defend ourselves and our clients against this arbitrary use of state power.”
The asset manager said in a report Wednesday that it has reduced support for shareholder proposals on environmental and social issues for a third straight year, arguing that many of the efforts lacked merit and harmed long-term financial interests while doing little to improve companies.
BlackRock backed 4% of 493 such proposals from July 2023 through June 2024, according to the report. That’s down from 7% a year earlier and more than 20% in the same period through mid-2022.
The firm said in January that its stewardship team was focused on the financial health of corporations and increased support for resolutions on corporate governance — the “G” in ESG investing. The Wednesday report indicated that BlackRock supported 21% of such proposals in the period, up from 11% a year earlier.
Heritage Action, a sister to conservative think tank The Heritage Foundation, applauded Morales on Thursday for “taking bold action” and “joining efforts across the country to protect consumers and combat harmful (ESG) investing practices at BlackRock.
“Asset managers have a duty to put investors’ financial interests ahead of the Left’s political agenda,” Heritage Action Director of State Advocacy Catherine Gunsalus said in a news release. “Heritage Action is thrilled to see Indiana join Mississippi and a growing number of states fighting to protect the savings of hardworking Americans. We commend Secretary Morales for leading the Hoosier charge to strengthen the nationwide movement against irresponsible ESG investing.”
Some Republicans targeting ESG
Numerous efforts underway in GOP-led states target ESG principles being employed as a metric for investments.
In March 2023, 21 Republican Attorneys General — including Indiana Attorney General Todd Rokita — issued a letter to asset managers, including BlackRock, asserting breaches of their fiduciary duties and violations of antitrust law as a result of ESG investing, as well as the asset managers’ participation in efforts to increase public disclosure around the risks and impacts of climate change.
Hoosier lawmakers approved specific legislation shortly after, banning controversial ESG investment strategies. More than two dozen other states have enacted similar legislation, according to Heritage Action.
The Indiana law charges the state treasurer — who is supportive — with creating and publishing a list of investment managers who make “ESG commitments.”
That includes companies who promote greenhouse gas emission reductions and corporate governmental changes — including protected classes enshrined in Indiana’s civil rights code — as well as those who divest from companies in industries like weapons manufacturing, fossil fuel production or immigration enforcement.
The treasurer provides the asset manager’s name and evidence backing up its decision to the Indiana Public Retirement System’s board — of which the treasurer is a member. If the system can’t find a comparable alternative, it must make that decision and supporting evidence public.
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“The secretary of state emphasized in his letter that there is “little to no evidence” to back that up, although Morales offers no evidence of his own to substantiate the allegations.” This is funny. The articles author is basically calling out the fact the Morales can find no evidence of a positive impact. Yet instead of pointing out a positive impact just retorts that it’s a negative. Come on man! DO some journalism stuff.
Wouldn’t any positive or negative impact just be an opinion? “ESG-backed funds do better in the long run” is the same as saying “4-3 defenses win the most championships!” It may be true – but correlation doesn’t mean causation. In this case, corporations heavy in ESG type things are probably just good at being profitable because they’ve got their stuff together, meaning Blackrock’s statement is likely true.
If he doesn’t like funds that use ESG, just don’t invest in them. This is about like a fund saying we can make money buying undervalued companies and waiting for their price to go up. That has never been considered fraud and it’s has about the same causation/correlation factor as ESG.
Indiana voters get what they deserve when they vote for an idiot just because they have an “R” next to their name.
The only policy of the state of Indiana should be the old one – we invest in what gets the best returns, period. All these ESG nonsense is Indiana is carrying water for energy companies and trying to force asset managers to continue to invest in companies like coal. And we are using state pension funds for police, firefighters, teachers …
I can only hope that legislators also are putting their retirement funds on the lines with these policies.
What a giant waste of time from a giant man-baby.
There was a lengthy article recently in the Wall Street Journal detailing how ESG funds significantly underperformed other funds. I know the wokestappo won’t like that but facts are not fungible.
So’s the fact that Indiana would have dropped those funds because they got worse returns without a single change to our laws.
If the most ESG-iest fund in the land gets the highest returns, Indiana should be putting our money in it. We as a state are saying, no, we will do everything in our power NOT to invest in that fund.
Explain how that makes fiduciary sense to pensioners.
I remain convinced that 98% of the folks commenting on this issue do not understand what they’re talking about. The state’s ESG law was the equivalent of passing a bill mandating that the sun rise in the east and set in the west.
environmental, social or governance is also a “political Ideology” in itself. The return probably never worth the cost associated. In fact, these policies are often quota systems, buying technology before it’s economical like offset carbon credits, etc. ESG is another attempt to move towards greater socialism.
Wow!
I feel safer already with Morales at the helm.