Indiana treasurer claims world's largest asset manager has 'ESG commitment' (2024)

Republican State Treasurer Daniel Elliott is targeting the world's largest asset manager in his first-ever report alleging an entity servicing the Indiana Public Retirement System (INPRS) has made an ESG commitment disfavored by Indiana law.

ESG refers to environmental, social or governance factors — such as reducing air pollution or ensuring diverse corporate board membership — investment firms sometimes choose to consider as part of their investment strategies, since companies indifferent to their environmental impact or headed by monocultural leadership may be less successful in a global marketplace.

A 2023 Indiana statute, House Enrolled Act 1008, tasks the state treasurer with determining whether investment firms working for INPRS have made an "ESG commitment," and then requires INPRS to replace the investment firm — unless the INPRS board decides the services the firm provides using ESG are superior to others in the marketplace.

Elliott claims in a report issued Friday that BlackRock, which has $10 trillion of assets under management, made an ESG commitment by acknowledging in its 10-K annual report to the U.S. Securities and Exchange Commission that BlackRock faces reputational and business risks due to "competing demands from different stakeholder groups with divergent views on ESG-related matters."

BlackRock's 10-K report does not express any kind of commitment to ESG as a company. Rather, it explains that BlackRock offers ESG-related investments to customers who want them, as well services to "those who choose not to invest in products or strategies with sustainable investment objectives," and indicates that BlackRock may struggle as a business to continue serving both groups of customers.

"If BlackRock is not able to successfully manage ESG-related expectations across varied stakeholder interests, it may adversely affect BlackRock's reputation, ability to attract and retain clients, employees, shareholders and business partners, or result in litigation, legal or governmental action, which may cause its (assets under management), revenue and earnings to decline," BlackRock said in its 10-K report.

The state treasurer also points to a routine 10-K disclaimer that third-party data concerning ESG matters provided to BlackRock may not be accurate or complete as evidence that BlackRock is "promoting ESG interests" rather than fulfilling its responsibilities to the $45 billion Indiana pension program for state and local government employees.

In addition, Elliott asserts that BlackRock's participation in the Net Zero Asset Managers (NZAM) Initiative, a group of global asset managers committed to working toward the goal of net zero greenhouse gas emissions by 2050, "as evidence of an ESG commitment."

"We shouldn't accept actions that put Hoosier retirees at risk. ESG commitments hurt investments when employed by financial institutions. We must protect our public servants from having their hard-earned savings affected by ESG decisions made by large corporations such as BlackRock," Elliott said.

BlackRock rejected the treasurer's assertions in a written response included in the treasurer's report. In particular, BlackRock said its only association with INPRS is to track a benchmark index comprised of international government bonds — a task that has no ESG component.

Moreover, BlackRock said the treasurer's attempt to impart an ESG finding on its work for INPRS only highlights the concern BlackRock noted in its 10-K report that the company might suffer reputational harm from working with governments and other entities opposed to ESG.

BlackRock also dismissed Elliott's concerns about its NZAM membership by pointing out its duties to BlackRock clients always take precedence over participation in any outside group, which BlackRock said it joined in this case for its clients who believe BlackRock should be part of the conversation concerning sustainability and how it may impact their portfolios, according to the report.

In response, Elliott insisted "ESG engagement is so fundamental to BlackRock's mission as touch its partnership with INPRS and, indirectly, INPRS assets. The spirit of (the law) is to provide the state of Indiana with service provider partners uninfluenced and untethered to the whim of ESG entanglement."

INPRS now has six months to decide whether to replace BlackRock based on the treasurer's report. Or, it can continue using BlackRock's services if the INPRS board finds no other suitable provider, notwithstanding BlackRock's alleged ESG commitment.

Republican State Comptroller Elise Nieshalla, who serves on the INPRS board, said she appreciated Elliott's "research and reporting" into BlackRock.

"We need fund manager partners who balance fiduciary duty with market risks to maximize return rather than prioritizing non-financial factors such as social, political and ideological interests. As a board, we must review our relationship with BlackRock and its investing policies as a whole," Nieshalla said.

Meanwhile, Tim Hill, president of the Alliance for Prosperity and a Secure Retirement, said Elliott's efforts to create an investment firm blacklist "puts politics over pensions and investment performance."

"Indiana state officials have plenty of evidence that shows the legally questionable approach of blacklisting investment firms could result in financial setbacks for the state’s pension plans. This deeply hurts the current pensioners and future retirees who rely on INPRS for their financial security," Hill said.

Ironically, Elliott recently purchased $40 million in Israel Bonds on behalf of the state of Indiana to support that foreign government during a time of war despite the state law discouraging investments based on ESG factors.