The next round of the ESG fight should start in Congress, not in court

In 2023, during state legislative sessions, approximately 165 bills were framed around using environmental, social and governance (ESG) investment criteria. Such bills will likely continue to be presented in state legislative sessions this year, but the new trend is to take this issue to the courtroom. 

Before the holidays, Tennessee Attorney General Jonathan Skrmetti (R) announced a “first-of-its-kind” consumer lawsuit against BlackRock. While the allegations in this lawsuit ostensibly aim to make the company more accountable to the public, it may unintentionally hurt consumers instead. 

The lawsuit alleges BlackRock made false or misleading representations to Tennessee consumers about the extent to which ESG considerations affect their investment strategies. It references BlackRock’s membership in organizations such as the Net Zero Asset Managers Initiatives and Climate Action 100+. 

If successful, this lawsuit will undoubtedly result in higher costs for end investors, potentially harming returns for thousands of retired Tennesseans. 

Securities laws already impose a fiduciary duty on all asset managers, which includes managing funds consistent with the investment objective in the best interests of their clients. The evolution of Climate Action 100+ and its “second phase,” which advocates for active ownership by its signatories, could, however, run contrary to those securities laws and managers’ fiduciary duty to their clients. 

An asset manager’s fiduciary responsibility is to account for risk, which can sometimes include ESG considerations. While voting against the majority of climate-related shareholder resolutions, BlackRock and others must carefully navigate these upcoming calls for more active ownership by Climate Action 100+.  

Unfortunately, this type of litigation is not new. Interest groups have long used consumer deception lawsuits to push policy and stifle free speech. This has been tried with climate litigation, but the reality is that lawsuits never achieve the policy solutions they desire. Ultimately, it is in legislatures where policy should be made rather than in a courtroom setting. 

State attorneys general have been testing the boundaries of consumer protection laws via courtrooms in pursuit of climate change policy goals for years. In 2017, 12 state attorneys general signed onto a brief supporting Exxon, condemning other state attorneys general for using their legal power to suppress a viewpoint in a broader public policy debate. They argued that such brazen political activity by an officer of the Constitution undermined public confidence in fair and impartial law enforcement. Moreover, they were right.

In 2024, it is essential for sound policymaking that this trend of suing others to get around congressional gridlock and proper channels be stopped. 

As the 2024 elections quickly approach, public policy must make significant advances in a year likely to be consumed by political division. Given the uncertainty looming over the ability of Congress to pass essential legislation this year, it is all the more important for state legislatures to step up in ideating innovative policy solutions. 

Ultimately, no courtroom should replace legislatures when it comes to making decisions on vitally important policy issues that impact everyday people who want their voices heard in the public square. This will become all the more vital if the Supreme Court, as expected, overturns the Chevron doctrine this term. 

This lawsuit has the potential to do more harm than good to Tennesseans. Everyday citizens should not shoulder the burden of a disagreement between a state attorney general and a private sector entity. Individuals should have the right to decide if they believe a company manages mutual funds well. 

We are fortunate to live in a country where an independent judiciary can be trusted to render impartial verdicts on various important matters. We are also fortunate to have a co-equal legislative branch, more accountable to the people, wherein more nuanced debates can take place in a manner that is impossible in our judicial system. 

Ultimately, the people of Tennessee will be better served by a broader and more nuanced policy discussion in their state legislature instead of the dice-roll that is resorting to litigation. 

Sarah E. Hunt is president of the Joseph Rainey Center for Public Policy and director, policy & strategy at the Arizona State University Rob & Melani Walton Sustainability Solutions Service. Previously, she ran clean energy and climate change programs at the American Legislative Exchange Council and the Niskanen Center. Follow her on X/Twitter: @sarahehunt01.