Economy and Society April 2, 2024: Mississippi issues cease and desist order to BlackRock, warns of potential finesEconomy and Society April 2, 2024:

ESG developments this week

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

In the states

Mississippi issues cease and desist order to BlackRock, warns of potential fines

Mississippi Secretary of State Michael Watson (R) on March 26 sent a cease and desist letter to BlackRock arguing the firm misled investors regarding the extent of its commitment to ESG strategies and threatened to fine the asset manager. According to Fox Business

In the order delivered to BlackRock, Watson takes aim at the firm related to its handling of non-ESG funds it manages. While BlackRock states those exchange-traded funds (ETF) and bond ETFs do not “seek to follow a sustainable, impact or ESG investment strategy,” Watson argues those representations are false or misleading because they run contrary to BlackRock’s public ESG commitments.

He particularly points to BlackRock’s repeated engagement in sustainable and ESG investment strategies. For example, the New York firm is a signatory of the Net Zero Asset Managers (NZAM) initiative, which was founded in 2020 to support the asset management industry to commit to a goal of net-zero emissions.

“BlackRock’s climate-disclosure reports demonstrate that BlackRock is actively working to fulfill its NZAM obligations by implementing a ‘sustainable’ net-zero investment strategy across ‘all assets under management,’” Watson’s order states. “BlackRock’s NZAM commitment demonstrates that it is presently ‘seek[ing] to follow’ across all assets under management ‘a sustainable, impact or ESG investment strategy … For the same reasons, BlackRock’s NZAM commitment provides a clear ’indication’ that such a strategy ‘will be adopted’ by all of BlackRock’s funds (that is, ‘all assets under management’) in the future. Accordingly, BlackRock’s statements are to the contrary.”

On Wall Street and in the private sector

BlackRock CEO leaves ESG mentions out of annual investor letter

BlackRock CEO Larry Fink released his annual letter to investors on March 26, which emphasized traditional investment themes and made few mentions of ESG-related topics—a focus in Fink’s previous letters. Stephen Soukup, the author of The Dictatorship of Woke Capital and an ESG opponent, argued that Fink’s letter aimed to create distance from ESG:

On March 26, Fink released his much-anticipated annual letter to investors. It too sought to put distance between him and ESG/sustainability. This year’s document does not contain the phrase “ESG” even once, does not use the phrase “stakeholder capitalism,” and only uses the word “stakeholder” one time. …

Larry Fink is tired of being famous for all the wrong reasons and BlackRock is tired of being kicked around by Republican state and federal legislators who oppose the firm’s role in advancing the climate change/energy transition agenda. …

Larry Fink may still want to be famous, but not like this. He’s hoping that an all-out effort to change the firm’s public image will change his as well. Time will tell.

PitchBook argues ESG investing does not harm returns

PitchBook, a market research company that provides information for investment banking, private equity, and venture capital firms, released a report March 21 arguing that ESG investment strategies do not harm returns:

The past few years have seen extreme backlash against the use of environmental, social & governance (ESG) analysis in the US, with politicians and other public figures calling for its abolition and some even proposing that its use become a felony. Simultaneously, the macroeconomic environment, particularly elevated interest rates and recent uncertainty about a potential recession, have made the path to high investment returns more difficult, forcing asset managers to reevaluate their strategic priorities….[A] portion of the asset managers that have ESG programs or are considering implementing them is shifting the language used to discuss them or decreasing any mention of them entirely, a practice sometimes called “greenhushing.” …

These dynamics have raised questions about whether the industry will force the term “ESG” into extinction and if so, whether it will be replaced by another synonymous but less politicized term. Some signs point to yes. For instance, once-outspoken advocate of ESG and CEO of BlackRock Larry Fink has now stopped using the “weaponized” term. Still, this phasing out is likely to occur only among some asset managers in some geographies—in Europe, for example, where it is less controversial, the term will probably endure. …

The financial performance of ESG-committed asset managers varies, but quantitative evidence that the use of ESG in the private markets necessitates sacrificing returns has not emerged.

Investors and investor groups file record number of ESG shareholder proposals

According to Ceres—a nonprofit that supports ESG investing—shareholders have filed a record 263 ESG- or climate-related proposals so far this annual corporate meeting season:

A record 263 climate-related shareholder resolutions have been filed so far this year for annual meetings of North American companies, a new tally showed on Tuesday, with proponents tailoring their wording to gain support. …

They pointed to a resolution that won 57% support at Jack in the Box on March 1, asking the restaurant operator to report certain greenhouse gas emissions and its goals to reduce them. The resolution stated rival McDonald’s already does such reporting and called Jack in the Box’s efforts “sporadic.” …

Proposals related to climate and other environmental topics account for the largest share of ESG proposals tracked by the Sustainable Investments Institute in a separate report. Shareholder proponents have already made deals to withdraw 56 of the resolutions so far this year, according to Ceres, compared with 83 such deals in 2023 and 116 in 2022.

In the spotlight

NBC reports on ESG opponent’s corporate engagement activities

NBC News ran a story March 29 covering the corporate engagement efforts of the Free Enterprise Project (FEP)—a project of the National Center for Public Policy Research and an ESG opponent—with Best Buy over the company’s donations to LGBTQ organizations:

Best Buy offered to screen donations from its employee resource groups going to LGBTQ causes following pressure from a conservative think tank that holds shares in the company, according to a Securities and Exchange Commission filing made public this week.

The SEC filing contains a monthslong email exchange between the National Center for Public Policy Research, which describes itself as a “nonpartisan, free-market conservative think tank,” and Best Buy. The dialogue, which hasn’t been previously reported, shows how the center said it would make “a splash” unless the consumer electronics giant moved in favor of its demands. 

In some of the last correspondence in the filing, Best Buy noted that it allows its employee resource groups “some discretion to directly support organizations of their choosing” but added that “any such contributions would be screened to ensure they do not advocate or support the causes or agendas you have identified as concerning.”