By LESLIE BONILLA MUÑIZ
Indiana Capital Chronicle
Indiana Treasurer Daniel Elliott announced Friday he placed BlackRock — one of the world’s largest asset managers — on a state watchlist, accusing the firm of making illegal environmental, social or governance commitments. The public retirement system will decide whether to remove the company from its investment portfolio.
Lawmakers in 2023 empowered Elliott’s office to enforce a new ban on ESG investing in the state’s pension system. The investment practices have become a culture war flashpoint, with advocates arguing the ban will keep “politics out” of state finances and opponents defending ESG as risk management.
“We shouldn’t accept actions that put Hoosier retirees at risk,” Elliot said in a news release.
“ESG commitments hurt investments when employed by financial institutions,” he continued. “We must protect our public servants from having their hard-earned savings affected by ESG decisions made by large corporations such as BlackRock.”
BlackRock pushed back in a statement to the Capital Chronicle.
“Contrary to the Treasurer’s assertion, BlackRock has been singularly focused on delivering performance for INPRS, consistent with their objectives,” the company said. “We take direction from our clients, as our business is grounded in our fiduciary obligation to provide our clients with choice.”
“On behalf of our clients, BlackRock has invested approximately $95 billion in Indiana, and we are helping more than 415,000 Indiana residents retire with dignity. We are proud of our contribution and remain committed to Indiana,” it added.
INPRS confirmed that it would, in accordance with its anti-ESG policy, put BlackRock on an “investments watchlist.”
The allegations
Daniel’s office alleged that BlackRock “prioritizes risky ESG engagement over its fiduciary duty to its clients,” citing the company’s own disclosures to the federal government.
Also in those disclosures, BlackRock has described its commitments as potential threats to its reputation and ability to attract and retain clients, Elliott’s office added.
The office additionally said BlackRock “acknowledges” that using third-party providers for “ESG data” — which may not be complete or accurate — “poses significant risks to its earnings.”
And it asserted that BlackRock’s membership in the NetZero Asset Management Initiative, intended to cut emissions and limit global warming, “shows a commitment to ESG despite BlackRock’s claims otherwise.”
As described in state law, violators could include companies who promote greenhouse gas emission reductions and corporate governmental changes — including protected classes enshrined in Indiana’s civil rights code — as well as those who divest from companies in industries like weapons manufacturing, fossil fuel production or immigration enforcement. Advertising, client letters and more count as evidence.
Public retirement system to weigh in
The news was part of a Friday meeting of the INPRS board, though the online stream had no audio due to technical difficulties.
Elliott’s involvement is the first step in the process 2023’s House Bill 1008 established.
A screenshot of part of BlackRock’s response to Treasurer Daniel Elliott’s allegations. (From INPRS presentation)
“The General Assembly tasked me with safeguarding Indiana pensioner’s assets from non-fiduciary actions,” Elliott said. “Today we have begun the process of reevaluating BlackRock’s role within our pension and retirement system.”
First, the treasurer provides the asset manager’s name and evidence backing up the ESG allegation to the INPRS board. The treasurer is an ex-officio member.
The board has 180 days, beginning when it receives notice from the treasurer, to replace the investment manager with one “comparable in financial performance.”
The law also blocks the board from entering, editing or continuing contracts with asset managers on the watchlist unless it can’t find comparable replacements.
“Given that the Treasurer Of State has concluded that Blackrock has made an ESG commitment pursuant to the criteria established in Indiana law, the INPRS Board is now statutorily required to undertake a process to determine whether to replace Blackrock with a service provider that is comparable in financial performance, so as not to violate the board’s fiduciary duty to the system’s participants and beneficiaries,” INPRS spokesman Dimitri Kyser said in a statement to the Capital Chronicle.
He said staff would conduct “initial due diligence” on potential replacements, consult with Elliott’s office on the candidates and present them to the board “as soon as practical.” Staff can use procurement information less than five years old, like the results of any requests for proposal, in looking for replacements.
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“INPRS staff will provide updates at each future board meeting and will provide the board with the sufficient information needed to take a decision within the 180-day timeframe,” Kyser wrote.
INPRS did not respond to a question seeking how much state pension money is handled by BlackRock.
If the board decides there is no comparable service provider, it can keep contracting with the flagged provider, but must include the decision and evidence backing it up in meeting minutes.
Several states have passed similar ESG “boycott” legislation.
An Oklahoma judge in May issued a temporary injunction halting the enforcement of a law blocking that state’s public retirement system from doing business with financial institutions that boycott energy companies. The judge’s ruling came in response to a suit filed by a member of the Oklahoma Public Employee Retirement System.
Some states have seen losses.
A Texas study, for instance, found that a pair of laws there cost the state about $669 million in lost economic activity during fiscal year 2022-2023, along with $181 million in decreased annual earnings, 3,034 fewer full-time jobs and more than $37 million in tax revenues. One law bars insurers from considering ESG factors, while the other bans Texan municipalities from doing business with — including bond underwriting deals — banks that have ESG policies.
