Dive Brief:

• Mississippi Secretary of State Michael Watson sent BlackRock a cease-and-desist order Tuesday, alleging that the firm has made “untrue and misleading statements” regarding both its ESG and non-ESG funds. 
• The order warns the world’s largest asset manager to stop offering securities in or from Mississippi and stop “from making fraudulent statements, omissions and other misrepresentations.” BlackRock CEO Larry Fink said in his annual letter to investors released the same day that the firm would continue to focus on energy infrastructure to support both the energy transition and “energy security” this year.
• The state said BlackRock’s offerings marketed as non-ESG funds are misleading because the firm has committed to use all assets under its management to work toward reducing carbon emissions to net-zero, as a member of the Net Zero Asset Manager Alliance. Watson’s office argued that BlackRock's ESG funds were misleading because the firm said ESG can drive positive financial outcomes for investors, which Watson’s office disputes.

Dive Insight:

Mississippi becomes the latest state to join an anti-ESG campaign against BlackRock, which has already been banned from working with four states in reaction to bills targeting firms that “boycott” fossil fuels, tobacco or firearms.

Watson’s office said the state’s Securities Division “has uncovered thousands of potential violations and will continue to investigate” before issuing any administrative penalties. Under Mississippi securities laws, BlackRock could face a $25,000 penalty for each charged violation, which Watson’s office said could amount to a “multimillion-dollar penalty.”

"Investment companies will not push their political agenda on Mississippians, especially through fraudulent and deceptive means,” Watson said in a release. “All citizens should have the opportunity to make informed and educated decisions when investing their hard-earned money. If not, our office will hold these bad actors accountable." 

Mississippi said while BlackRock’s non-ESG marketed funds claim not to follow an investment strategy based around environmental, social and governance principles, the firm’s commitments as part of the United Nations-backed NZAM and Climate Action 100+ may contradict these. BlackRock recently transferred its Climate Action 100+ membership to a smaller international arm of its business, as JPMorgan Chase and StateStreet exited the coalition entirely.

In its annual 10-K filing last month, BlackRock said it is facing additional regulatory scrutiny and uncertainty due to the domestic and international proliferation of ESG-related legislation and regulations. The asset manager said its revenues could be affected by the mounting focus on ESG — from parties for and against the integration of those factors into investment decisions.

Fink, in his letter to investors Tuesday, said the energy transition is a “mega force” and “a major way to address climate change” that is “creating both risks and opportunities for investors.” However, he added that Russia’s invasion of Ukraine has required additional reliance on fossil fuels and inflated gas prices.

Power operators and politicians alike were talking about decarbonization and energy security under the banner of “energy pragmatism,” Fink said.

“Even the most climate-conscious among them saw that their long-term path to decarbonization will include hydrocarbons, albeit less of them, for some time to come,” Fink wrote. “The point is: The energy transition is not proceeding in a straight line.”

Mississippi is hardly alone in ramping up its anti-ESG stance against BlackRock. The Texas Permanent School Fund this month announced it would divest $8.5 billion from the firm over its fossil-fuel stance. 

BlackRock Vice Chair Mark McCombe, in a letter last week to Texas’ education board chair, said the asset manager had generated $250 million for the state’s Permanent School Fund since 2006, noting that BlackRock has invested $120 billion in Texas-based public energy companies.

Meanwhile, BlackRock’s fund directors were also the subject of probes by Republican attorneys general over its climate coalition commitments.

Fink and his firm have turned toward supporting energy infrastructure as part of its strategy for 2024, kicking off with a $12.5 billion acquisition of Global Infrastructure Partners.