BlackRock agrees to new ESG disclosures in Tennessee settlement

By Niket Nishant and Ross Kerber

(Reuters) -Asset manager BlackRock agreed to new disclosure requirements about its use of sustainable-investment factors as part of a legal settlement with Tennessee Attorney General Jonathan Skrmetti, his office said on Friday.

The resolution is the latest step by New York-based BlackRock and by other firms to move away from environmental, social or governance measures. An anti-ESG backlash has gathered force among Skrmetti and other Republican politicians including incoming U.S. President-elect Donald Trump.

Skrmetti sued BlackRock late in 2023, alleging it did not adequately disclose its use of ESG factors and that it overstated their financial benefits. Although BlackRock did not admit to wrongdoing or pay fines as part of the deal, Skrmetti told Reuters in an interview that the agreement was significant as a mark of the times.

"BlackRock was at the heart of this, the biggest asset manager in the world, and their willingness to undertake this settlement speaks to the end of the ESG moment," he said. The company's steps like quitting an investor climate group on Jan. 9 "certainly helped solidify" the agreement, he said.

BlackRock, with some $11.6 trillion under management, said it was pleased to resolve the dispute with Tennessee. "BlackRock has consistently acted in the best interests of our clients, and we welcome the opportunity to demonstrate that fact through even greater transparency about our practices," the company said in a statement sent by a representative.

Among other things, BlackRock agreed to disclosure requirements such as giving quarterly, not annual, details about votes it cast, and to provide a rationale when its non-ESG funds cast proxy votes against management recommendations on environmental or social matters.

BlackRock already provides many such details on its website. Skrmetti said the formalization of the disclosures creates a "comprehensive compliance regime" and that the lack of financial penalties helped speed the deal.

ESG investing enjoyed a run as a hot area of finance but investors pulled back in recent years after Russia's invasion of Ukraine surged energy prices and hurt the relative performance of technology-heavy ESG funds that often avoid fossil fuel stocks.

Meanwhile Republicans, often from energy-producing states, have increased pressure on BlackRock and rivals like Vanguard and State Street over the issue. Fink said in 2023 that he had stopped using the term ESG as it had become too politicized.

(Reporting by Niket Nishant in Bengaluru and by Ross Kerber in Boston; Editing by Shailesh Kuber and David Gregorio)