The Daily Signal - Climate Activists Are Trying 'an End Run Around Democracy,' Conservative AG Warns

Episode Date: December 19, 2023

The environmental, social, and governance movement in investing is attempting an "end run around democracy" by forcing companies to adopt climate policies without passing any legislation, warns Tennessee Attorney General Jonathan Skrmetti. Skrmetti speaks with The Daily Signal's Tyler O'Neil about his first-in-the-nation lawsuit against BlackRock over allegedly deceptive ESG practices. Enjoy the show! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Tuesday, December 19th. I'm Tyler O'Neill. I sat down with Tennessee Attorney General Jonathan Scermetti to discuss his breaking lawsuit. I mean, this is a tremendous, first of its kind, first in the nation lawsuit against BlackRock for their environmental, social and governance policies, the ESG movement. Scermetti is bringing legal claims against. Black Rock, holding them accountable for what he calls violations of the law. We'll get to my interview with Scermetti right after this. Hi, this is Rob Lewy, executive editor of The Daily Signal and co-host of this podcast.

Each day we strive to bring you news you can trust. We see it as our mission to cut through the liberal media spin and provide honest, thorough, and responsible reporting on the most important issues of the day. But we can't do it without your help. As we approach the end of the year, the Daily Signal is counting on donations from listeners like you. We are the non-profit news outlet of the Heritage Foundation and rely on generous gifts from our supporters. Please help us by making a tax-deductible year-end gift. You can do so by visitingdailySignal.com slash donate.

Your gift will ensure that we continue producing cutting-edge journalism and investigative reporting. Again, that website isdailysignal.com slash donate. Thanks for listening. We are grateful for your support. This is Tyler O'Neill, a managing editor at The Daily Signal. I am honored to be joined by Tennessee Attorney General Jonathan Scermetti. It's a great pleasure to have you with us. It's great to be back.

So you just filed the first of its kind lawsuit against BlackRock, alleging a violation of the Tennessee Consumer Protection Act for deceptive practices related to climate change and the ESG Environmental, Social, and Governance, policies that Black Rock has implemented and claims that they haven't implemented for some of their funds. Can you walk us through this lawsuit and why it's so important for the consumers in Tennessee? Sure. So the basic point of this is BlackRock has said two things that can't both be true. The first is that they're taking investors money and investing it purely for the purpose of maximizing the return on

investment. So they're taking the money and their only goal with it is to make more money. But they've also put out statements saying that they're committed to net zero climate change by certain dates. They've made lots of statements about working to use all of the assets under their management to further the goal of reducing greenhouse gas emissions. And both of those can't be true. Either they're just looking to make money or there's something else. And consumers need to know the truth so they can make informed decisions about where they want to invest. Yeah, I think when I was going through this lawsuit, it struck me as interesting because a lot of lawsuits I've read have a lot of different counts, but you're just bringing in one specific

claim and saying that Black Rock has violated this law over and over and over again. Yeah, I mean, the consumer protection law is there to make sure that people can have trust in markets. Transparency, clarity, honesty. These are the bedrocks of the economic exchanges that make us all prosperous. And even people who think government should have a very small role, typically think that government should make sure companies are telling the truth. And this is an instance where we're using the basic tool of consumer protection in Tennessee, our Consumer Protection Act, to say, we need to be sure that there is honesty and clarity here and that customers know what they're getting. So it looks like there were two big, you know, our alleged deceptions that BlackRock

uses, according to the lawsuit. One of them is this claim, you know, it has the non-ESG funds, and therefore, even though it has these overarching promises about net zero for the entire, for the entire enterprise, really, for all assets under management, it still claims that some of the assets under management, namely the ESG, the non-ESG funds. don't follow that. And then there's also this confusion where BlackRock claims that a focus on climate risk and energy is about driving financial incomes for clients. Like you said, it's aimed at making more money for investors.

When it also, BlackRock has also admitted that sustainability metrics do not provide an indication of current or future performance, nor do they represent. the potential risk and reward profile of a fund. These two things seem totally incommensurate. And would you say those are the two, you know, zooming out on the lawsuit because it's really in depth here. But those are the two basic claims that you say they violate it. That's exactly right.

For people who were investing in ESG funds, they knew that their investments were going to be used in ways to further. their environmental goals. They had transparency about the purposes that BlackRock was pursuing. But for people investing in the non-ESG index funds, they just thought they were going to be making money. That's all they wanted. That's all the company promised them.

And they had the expectation that their funds would be invested with the sole goal of making them more money, traditional fiduciary duty. And then we have objective data that shows that ESG-oriented funds don't perform, or don't perform as well as funds that are strictly focused on making money. And that makes sense. If your only goal is making money, the odds are you're going to be better at making money than if you have multiple goals you're pursuing at the same time.

Yeah. And then there was this one claim, reading through the lawsuit, they had one claim where they said that all the governments that represent over 90% of the world's GDP have committed to move to net zero over the coming decades. And that's like a claim that they're making in an ESG fund. And you listed no fewer than 14 statements that BlackRock could have said, adding as disclosures, explaining why that claim is deceptive. Would you walk through that a little bit? Sure. So there are these sweeping aspirational environmental statements out there. It was the fad for people to make these commitments. I think it still is.

but they make them with no real intention of keeping them. And that applies to both governments and companies. And this looks to me like an example of laundering the government's airy commitment to try to use it as a hammer to move the needle on the corporate side. And it's almost like bootstrapping up. If everybody makes these promises and pretends that people mean it, eventually they can leverage that into some real policy changes. But, of course, it's not the purpose of inventing.

investment funds to make policy changes. Their purpose is to make money for investors. And here, you know, you've got these airy aspirational statements that I don't think any sophisticated investment analyst is going to put that much weight in. Even if you think the trend is towards more environmental enforcement, and, you know, that may well be the case. you know, the net zero by 2030, net zero by 2050 goals are just not at all realistic. And we see constantly governments making these promises and slipping. I think it is an extremely rare event for a government to come anywhere close to meeting the goals that they commit to. And so for BlackRock to say, well, this is the way things are going and it's inevitable that anyone who's not on board with this is going to be financially.

crushed, that doesn't seem like great advice. It seems betrayed by the facts on the ground. So this all seems based on the climate alarmist idea that because of climate change, we're going to experience humongous climate-related disasters such that the only way to protect your long-term investments are to focus on fighting climate change. I think that would be their version of events and their argument here. Where does that fall apart? And, you know, where do the interests of Tennessee consumers conflict with pushing that agenda through an investment firm like BlackRock? Well, if you're looking at making big changes to the way society operates to achieve policy outcomes, that's really something the government has to do. There has to be transparency and accountability.

and the people need to have a voice in that process. And to say that making these radical changes across the board through every piece of every industry is financially necessary just doesn't seem consistent with what we're seeing in terms of returns. It doesn't seem consistent with the differences between different industries. Even if you accept a robust climate change theory and you think that there are big problems coming down the road, different companies are going to be effective.

much differently. And I think it's it's just not rational to say that there's this universal principle that has to drive every investment decision. And so I believe you signed on. There was a similar, there was an attorney general letter demanding, you know, from, from state attorneys general, demanding BlackRock explained some of these practices that seem deceptive. I believe this was set back in March or April of this year when attorney General, Virginia Attorney General Jason Miaris led it. Would you say that your effort here is built on that or is this completely different? Well, I think there's been a lot of collective attention to these ESG issues. And I know the other Republican AGs have been very active in this

space as well. Jason Mierrez, Sean Reyes out in Utah, Steve Marshall's been looking at at Austin Canutes. I'm sure I'm going to forget some, so I better stop naming them. This is something that a lot of people are concerned with, and it's because they hear over and over from regular people in their states who have retirement investments, who don't want to see their money being used as a cudgel to bludgeon the entire global economy into a politically ideological direction. And that's the fear that we're looking at here. These are huge amounts of money, tiny little pieces aggregated into vast sumps, black rock, controls almost $10 trillion in assets.

And that's by and large, made up of your neighbor's retirement money. And when you're using this money to pursue a political agenda without transparency, without accountability, you're undermining democracy and you're abusing the trust to the people who have invested with you. So the lawsuit asks the court to find that BlackRock violated the Tennessee Consumer Protection Act to order BlackRock to see. cease its misrepresentations to order BlackRock to restore the money or property lost as a

result of the alleged violations of law and to get BlackRock to lose its ill-gotten gains. I think this is, you know, this is a very strong suit with a lot of strong demands. The other big one is a civil penalty of $1,000 to Tennessee for each violation of the law. And I don't know if you have a ballpark estimate of how many violations of the law you're alleging here reading through it, you know, considering the size of a state like Tennessee, that's a lot of civilians who could be, you know, impacted, a lot of consumers who could be impacted by this. How big of an effort do you think that's going to, I mean, you mentioned BlackRock has trillions in assets under management. But why structure the lawsuit in this way? Well, this is our consumer protection. law, and it provides a variety of penalties. The biggest part of it from my perspective is getting

the company to be clear and transparent and honest. And there are financial ramifications here, but this is not a cash grab. This is an effort to make sure that investors going forward know where their money is being used. And if there's an explicit ESG fund that they can invest in, that's great. People have the right to make choices. And if someone wants their retirement, money to be invested in a way that furthers a particular agenda. That is absolutely their right, and the company can absolutely sell them a product that does that. But there has to be transparency. So there could be substantial financial ramifications here.

The consumer protection law provides significant deterrence so that companies don't engage in this behavior, and we need to make sure that companies know that there are going to be consequences if they do. But ultimately, this is a case about the true. And the biggest takeaway for me at the end of the day is if we can get clarity for consumers, if we can make sure that companies aren't saying feel good things to people who want to feel virtuous and saying rigorous things to people who just want return on their investment, they need to pick one thing or another, make sure it's the right thing and tell the truth to their investors.

Yeah, I think that's a key point. When it comes to this ESG movement, it almost seems as though you have, you have, you have, of a movement that's taking over institutions surreptitiously, somewhat like, I would compare it to the way that the transgender movement kind of co-opted a lot of medical establishments. Would you talk on, you know, a broader scale? I mean, Black Rock is at the center of the ESG movement, but about this ESG movement in general, is there a likelihood for follow-up actions against other investors? firms that are engaging in these sort of deceptive practices?

I think for sure there is the potential for additional litigation, not just in Tennessee, but there are a lot of states that are looking at this. We have a slight quirk in our consumer protection law that makes it a little bit easier for us to get out front. But looking at it more broadly, part of the problem is the slipperiness of the term ESG. It's environmental, social and governance. And some of the governance thing that these ESG analysts are looking at, some of the governance issues are totally legitimate, right? Looking at board composition, looking at the structure of corporate governance, there are

opportunities there to do good things that increase accountability. So ESG is not entirely radical. It's not entirely bad as a concept. But that is, I think, in part to allow for this Motten Bailey approach where you say, well, ESG is bad and people come out and say, well, of course, you don't want the CEO to be the chairman in most circumstances and we need to ensure good governance. But then there's this sort of hardcore behind the scenes approach to ESG, which is to insert really radical environmental commitments into the DNA of every major corporation. And at the end of the day, the biggest problem with it

is it's an end run around democracy. If you take the financial companies that are essential for functioning in the modern economy and you line them all up and you have them telling everybody who wants to do business that you need to do things this way, you can't do this, you have to do that, it's essentially governance, it's essentially making policy, and they either have to follow those rules or they're going to suffer. And there are antitrust implications there, I think, but more broadly, there are democracy implications.

You have a small sliver of society with an incredible amount of financial power who are able to dictate how society functions. There's no transparency, there's no accountability. And that's the exact opposite of what America is. If you're going to make decisions about how companies should have to behave to do business, those are decisions that ultimately have to flow from the people. And this is part of, I think, a broader effort on the part of some elites to make sure that the American people don't have that kind of oversight over their economy, over their day-to-day lives. You see it in the tech sector too, where people who are absolutely convinced that they're well-intentioned are using their privileged positions in society to steer society in ways that look oligarchical.

And this is America. everybody has a vote, everybody's equal, and if you want to make that kind of change, it has to be put before the people in a way that lets them say yes or no and lets them know what's going on. Yeah. So you talk about, I love that connection between the ESG movement and a lot of these social media moves, because what we saw through the Twitter files, what we saw through these efforts to buy, and really by government, but also by the company. themselves to craft the narrative to prevent dissent or alternative views from making it through. And I think the truth on COVID is still, of course, always developing. But the fact that we had government agencies and we had Twitter and we had people silencing as misinformation, what people themselves experienced. And I mean, Facebook had this insane admission where they're like, many of these things are true,

but they might increase vaccine hesitancy, therefore we have to silence them as misinformation. That sort of grasp, can you talk a little bit more about how that plays out in the realm of ESG? And you just mentioned it's very dangerous for democracy. I think you touched on that already, but I'd like to unpack it a little more. Sure. So for America to work, we need the people to believe that they have a voice, that everybody has the opportunity to go to the ballot box. It's the Norman Rockwell vision of each American having a say. And yeah, we don't always get our way, but everybody has a chance to weigh in on the process. People are held accountable. If somebody engages in shenanigans, they're going to pay for it. You know, it's the town meeting. It's built into the bones of America. And when you look at these ESRs, you know, it's, it's the town meeting. It's built into the bones of America. And when you look at these ESG moves and some of the other corporate moves these days, they're designed to avoid that.

And as I said, it undermines our ability to govern ourselves, but it also undermines our trust in our society. The project of America depends on everybody believing that to some extent we're all in this together. That's where the Constitution comes from. We've spent centuries getting better and better at that. And if it turns out that in fact, some people have all the say and other people are just engaged in pantomime, that's a problem. People aren't going to believe that we're all in this together. People are going to believe that, you know, the powerful are out to get them. And part of the problem here is the ESG actions by big companies, the censorship by big companies.

it creates fertile ground for insane conspiracy theories that further undermine people's faith in our system. And it's understandable why this happens, because when you have sources that are supposed to be telling you the truth and you know that they're lying, it's really easy to start speculating about what the exact extent of those lies is. And pretty soon we don't have the common factual basis to have constructive disagreement. If you share the same facts with people and you just have a different take on how they should play out on what your priorities should be in addressing them, then you're having constructive arguments that are going to lead to better outcomes for the country. But when you have people who are uncertain about what the facts are and they're disagreeing about truths that they can never resolve or that they'll have to put a lot of work into resolve, there's not that common approach anymore. and you end up with a really splintered and atomized society where democracy is not able to do the work that it's supposed to do to achieve good outcomes.

It's like capitalism. If democracy is functioning right, you have the best ideas fighting against each other and the best ideas ultimately prevail. But if people have no means of understanding what they're fighting about, if there are disagreements about what's actually happening, then you're just yelling at each other. And there's no trust.

and frankly, a lot of our big corporate actors have done a lot to deserve not to be trusted. And so we're using the law here in a way to write that ship to say you have to be honest because we need big corporations engaged in serious and consequential actions to tell us the truth so that we as a society can evaluate what they're doing. And of course, that's not what the law is here, right? The law is not the pro-democracy, let's fix it law. This is a consumer protection law that says individual consumers have a right to the truth. But the reason for the urgency here, the reason that this matters so much to so many people,

is because there's both the first order effect on consumers who need to have good information to have good choices, and because it's got this much broader, ramifying effect on society. If it was just lies to consumers, it would be bad and it should be punished, but folks would not be as worked up about it. but this is part of a broader pattern of corporate abuse of the trust that Americans have placed in big corporations. And we need to fix that. There's nothing wrong with corporations. There's nothing wrong with making money.

But there's a problem with deception and there's a problem with dishonesty. Yeah. And I mean, in this case, one of the problems is the Black Rock is not making money for its investors because it's focused on ESG instead. Yeah, that's right. You look at the numbers that they have and they show that the, the ESG-oriented products don't do as well as the pure index funds. And if they were really just looking at making money, and I'm certain that we'll have many disagreements,

and there will be many experts that come to explain why what I'm about to say is wrong, but if you're just focused on making money, you're probably going to make more money than if you're not just focused on making money. And we've seen that play out so far, and I have no reason to believe that that's not going to be consistently shown by the facts as we do deeper and deeper dives on these numbers. Well, thank you so much, Attorney General Skirmetti. Is there anything else you'd like to add on this lawsuit in particular?

Just that there's a lot of complexity in the world of investments, BlackRock is a huge and very successful company. But this is a simple lawsuit. It's just saying BlackRock has said two things. They both can't be true, and they need to come clean with consumers. Well, thanks again so much for joining us. Thanks for having me. Have a good day. And that was Attorney General Jonathan Scermetti. If you liked what you heard here and if you want to see more of this kind of hard-hitting news in your podcast feed,

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