The Attorney Generals of 19 statesdemand answers from Black Rock’s CEO,Laurence Fink – August 5, 2022

Mr. Laurence D. Fink, CEO BlackRockInc.55 East 52ndStreetNew York, NY 10055August 4, 2022

Dear Mr. Fink:BlackRock’s Chief Client Officer, Mark McCombe,recently wrote aletter to many of our states describing BlackRock’s position on energy investments with respect to our pension funds. Mr. McCombe’s letter c ntains many statements that appear to conflict with BlackRock’s previous public statements and commitments.Based on the factscurrently available to us, BlackRock appears to use the hard-earned money of our states’citizens to circumvent the best possible return on investment, as well as their vote. BlackRock’s past public commitments indicate that it has used citizens’ assets to pressure companies to comply with international agreements such as the Paris Agreement that force the phase-out of fossil fuels, increase energy prices, drive inflation, and weaken the national security of the United States. These agreements have never been ratified by the United States Senate. The Senators elected by the citizens of this country determine which international agreements have the force of law, not BlackRock. We have several additional concerns that fall under our jurisdictional authority as attorneys general.

1.Neutrality Mr. McCombe’s letter posits that BlackRock is agnostic on the question of energy, and merely offers investing clients a range of investment options in the energy sector. But this claimed neutrality differs considerably from BlackRock’s public commitments which indicate that BlackRock has already committed to accelerate net zero emissions across all of itsassets, regardless of client wishes. BlackRock joined the Net Zero Managers Alliance (“NZAM”),1which, among other things, directs members to“acknowledge that there is an urgent need to accelerate the transition towards global net zero emissions and for asset managers to play our partto help deliverthe goals of the Paris Agreement.”

2 Furthermore, BlackRockhascommitted to “[i]mplement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with our ambition for all assets under managementto achieve net zero emissions by 2050 or sooner.”

3 Accelerating and delivering the goals of the Paris Agreement across all assets under management through an escalation and voting strategy is a far cry from neutrality.Rather than being a spectator betting on the game, BlackRock appears to have put on a quarterback jersey and actively taken the field. Asa firm, BlackRock has committed to implementingan ESG engagement and voting strategy across all assets under management,and held over 2,300 company engagements on climate, the most of any category of engagement.

4BlackRocktook voting action against 53 companies on climate issues, with 191 companies put on watch.

5A governance engagementstrategy primarily focused on BlackRock’s climate agenda necessarily overlays ESG factors on the core index portfolios that comprisea substantial part of many state pension funds. BlackRock’s engagement strategy,in which a net zero climate agenda is a significant or main consideration, would covertly convert states’ core index portfolios to ESG-Focused funds should the SEC’s recently proposed definition of an ESG fund be adopted.

62.DialogueRegarding BlackRock’scommitments to climate change advocacy organizations, you state that you have joined them “to participate in dialogue with governments, companies, and financial institutions on sustainability issues important to our clients.”

7Under our state laws, the desired “dialogue” regarding any potential energy transition would be how to maximize financial returns, which would potentially include the opportunistic purchasing of fossil fuel assets discarded by companies seeking to meet net zero commitments.However, any discussion of purchasing such assets to maximize returns is conspicuously absent from GFANZ or Climate Action100+. Rather, these public commitments display a purposeof activism rather than “dialogue.”For example, as one of our colleagues noted in a recent opinion, the Steering Committee for GFANZ (of which BlackRockisa member) describes its purpose as follows: The systemic change needed to alter the planet’s climate trajectory can only happen if the entire financial system makes ambitious commitments and operationalises those commitments with near-term action.* * *That is why we formed [GFANZ], to bring together over 450 leading financial enterprises united by a commitment to accelerate the decarbonisation of the global economy.”

8 Clearly, the expressed purpose is to “alter the planet’s climate trajectory,” not to “dialogue.” As noted above, BlackRock’s commitment to, and execution of, an escalation and voting policy is designed to use the leverage of the financial sector to change behavior. Indeed,the first phrase on the GFANZ website is “[b]ringing together the financial sector to accelerate the transition to a net-zero economy.” Similarly, Climate Action 100+ is very clear that its purpose is to prevent climate change and force net zero emissions on companies:The 160 companies engaged by the Climate Action 100+ initiative represent over 80% of global industrial emissions and are, as a group and individually, critical to progressing the global economy to net-zero emissions by 2050. This level of ambition is necessary according to the IPCC3 in order to hold global warming to 1.5°C above pre-industrial levels, and to avoid the most catastrophic effects of climate change. BlackRockhaschosen to leaddetailed, comprehensive efforts to retire fossil fuels. BlackRockhasemphasizeditsstatus as a leader in GFANZ’s work on sectoral decarbonization pathways,

10 which aims “to catalyse successful agreement on net-zero pathways with several major global industries,” prioritizing “hard-to-abate sectors and fossil fuels” and “developing a set of solutions to provide owners of carbon-intensive assets with tools to incentivise and facilitate asset retirement and decarbonisation in line with a science-based net-zero pathway.”

11 BlackRockchairsa steering committee as part of GFANZ focused on the managed phaseout of fossil fuels.

12 This goes beyond mere “dialogue,” to advocating for specific results. And, notably missing from these efforts are an exclusive focus on maximizing financial return from client’s fossil fuel assets, even if such efforts increase emissions.Moreover, BlackRock joined groups so focused on promoting the Paris Agreement that they want to stifle opposing viewpoints altogether. Climate Action 100+“aims to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.”

13 Members of Climate Action 100+commit to forcing portfolio companies to “align[] political lobbying with the Paris Agreement,”without allowance for whether such an alignment would be in the financial best interests of the company.

14 The nature of our legislative process produces carve outs, exceptions, delays,or exemptions, any of which may be in the financial interest of the companies requesting them. Yet BlackRock appearsto have determined that every company should support the Paris Agreement without exception. Squelching political speech is the action of an activist whose mind is made up, not that of a neutral fiduciary seeking “dialogue.”3.Duty of Loyalty Black Rock’scommitment to the financial return of state pensions should be undivided. Many of our laws state that a fiduciary must “discharge [their] duties solely in the interest of the participants and beneficiaries. . . for the exclusive purposes of . . . providing benefits to participants and their beneficiaries; and . . . defraying reasonable expenses of administering the system.”

15 The stated reasons for your actionsaround promoting net zero, the Paris Agreement, or taking action on climate change indicate rampant violations of this duty, otherwise known asacting with“mixed motives.” As one commentator has put it: “Acting with mixed motives triggers an irrebuttable presumption of wrongdoing, full stop.”

16 Whethermixed motives arise from a desire to save the world or attract investment from European or left-leaning pension funds, is ultimately irrelevant to the legal violation.Investorshave wide latitude over their own money, but our state pensions must be invested only to earn a financial return.4.Duty of Care Black Rock’spublic commitments treat the “energy transition” as a fait accompli. As noted above, you have committed to manage“all assets under management to achieve net zero emissions by 2050 or sooner.”

17 BlackRock’sbelief that the world will require net zero by 2050 could be a pretext to force companies to adopt your preferred climate policies. This would not be the first time that a fiduciary claimed unsupported assumptions as the basis for its actions. For this reason, many of our states require a fiduciary to “make a reasonable effort to verify facts relevant to the investment.”

18 BlackRock’spastfailure to predict fossil fuel demand warrants caution regarding itsenforcement of net zero policies on portfolio companies. Governments are not implementing policies to require net zero. As the International Energy Agency has noted, “In many cases, pledges have not yet been backed up by the strong and credible near-term policies needed to make them a reality.”

19 Furthermore, “the pledges themselves –even if implemented in full –do not yet put the world on track for a 1.5 °C stabilisation in global average temperatures.”

20 BlackRockknowsgovernmentsare not taking the predicted actions because it calls on them to adopt policies requiring net zero, and to live up to their pledges.

21 In particular, the United States has not implemented net zero mandates. Despite doing everything in his power at the beginning of his presidency to shut down fossil fuels, even President Bidenis appearing to reverse course given the harm his inflationary policies have inflicted on the American people.Given this history, it is not reasonable for a prudent fiduciary to assume that the Paris Agreement will be implemented within the United States, and by all of its signatories,on time and in full by 2050. Neither has Europe followed your predicted net zero, renewable energy-focused course. Mr. McCombe’s letter written on May 24thstates the following about the Russian invasion:These events [Russian invasion]may drive short-term increases in demand for traditional energy and associated emissions in some regions, while potentially accelerating investments into renewable energy in Europe and other regions where energy security goals are aligned with decarbonization.In fact, energy security is not aligned with decarbonization. When the two conflict, energy security wins. This should not have been surprising to you. Contrary to your predictions,Europe has restarted its coal plantsless than a month after Mr. McCombe’s letter.

22 As discussed below, this is occurring after BlackRockvoted to penalize the board of directors for a European utility, Fortum, for investing in coal.

23 BlackRock’sinability to predict demand for fossil fuels in the short-termfor one region calls into question BlackRock’sconfidence in predicting such demand across the entire world in the decades to come. Perhaps recognizing that the predicted government actions are not materializing, BlackRocksometimes mentionsalternative paths to net zero,such as technologicalbreakthroughs or shifting consumer preferences. Based on the facts available to us, your assumptions appearpoorly supported. One climate group estimatedthat simply meeting projections for emissions reductions by 2030 would require 22x faster adoption of electric vehicles, and accelerating the share of low-carbon fuels by 8x, events that seem quite unlikely.

24 Given these facts, it strains credulity to believe that a sole focus on financial returns would lead an asset manager to manage all assets for the achievement of net zero by 2050 and make climate issues thenumberone portfolio company engagement factor. 5.AntitrustBlackRock’scoordinated conduct with other financial institutions to impose net-zeroalso raises antitrust concerns. Group boycotts, restraining trade, or concerted refusals to deal, “clearly run afoulof” Section 1 of the Sherman Act.

25 Section 1 prohibits “[e]very…combination . . . , or conspiracy, in restraint of trade or commerce.”

26 Regarding the definition of a “combination,” the Supreme Court has heldthat this language prohibits “concerted action.”

27 BlackRock’s actions appear to intentionallyrestrain and harm the competitiveness of the energymarkets. Disturbingly, asurvey last yearfrom the Federal Reserve Bank of Dallas asked: “Which of the following is the primary reason that publicly traded oil producers are restraining growth despite high oil prices?”

28 Sixty percent of respondents referenced a form of“investor pressure.”

29These antitrust concerns are especially acute because Black Rock and other asset managers affirmatively tout their market dominance.BlackRock is the world’s largest investment management company, with $10 trillion in assets, “more than the gross domestic product of every country in the world, except for the US and China.”

30 Climate Action 100+boasts of having “over 50 percent of all global assets under management,”

31while GFANZ touts its members $130 trillion “committed to transforming the economy for net zero.”

32 6.Energy Boycotts Many of our states have adopted legislation prohibiting energy company boycotts, and others will likely join them. Your letter was written in response to accusations that BlackRock may have violated one of these laws. In response to these accusations, Mr. McCombe stated: “BlackRock does not have any policies prohibiting or restricting investment in companies because they are energy companies.” As you may know, the definition of an energy boycottincludesactions to penalize companies for failing to meet emissions standards beyond what is required by relevant law.

33 In a document entitled, “Our Approach to Sustainability,”you detail numerous votes against companies for failing to meet disclosure standards that are not required by law.

34 Furthermore, BlackRock touted its vote against the board and president of Fortum for “undert[aking] a transaction that significantly increased its exposure to coal-fired power generation and therefore the carbon intensity of its business.”

35 Voting against the board is an action to penalize. Coal is a fossil fuel. BlackRock’sconcern regarding the carbon intensity of the business does not reference current environmental legal requirements.Relevant to a fiduciary duty inquiry, BlackRock’s action to penalize the Fortum board makes no mention of the price of the transaction.

36 Given Europe’s renewed commitment to coal, punitive actions to penalize fossil fuelsappearsto be directly contrary to the financial interests of your clients. Fiduciary duty is not lip service.BlackRock has an obligation to act in the sole financial interest of its clients. Our analysis of whether BlackRock complies with that obligation requires more than evaluating whether you claimed to have done so. Given our responsibilities to the citizens of our states, we must seek clarification on BlackRock’s actions that appear to have been motivated by interestsother than maximizing financial return. While couched in language about long-term value, BlackRock’s alignment of engagement priorities with environmental and social goals, such as the UN’s Sustainable Development Goals, suggests at a minimum a mixed motive.

37 Blanket statements regarding investing in particular asset classes without referencing price is not consistent withfiduciary and legal obligations. Nor areblanket commitments to vote for directors based upon protected characteristics, such as gender. Rather, BlackRock appears to be acting for a social purpose that may have afinancial benefit if certain improbable assumptions occur.If BlackRock were focused solely on financial returns, its conduct would likely be different. BlackRock’s actions on a variety of governance objectives may violate multiple state laws. Mr. McCombe’s letter asserts compliancewith our fiduciary laws because BlackRock has a private motivation that differs from its public commitments and statements. This is likely insufficient to satisfy state laws requiring a sole focus on financial return. Our states will not idly stand for our pensioners’ retirements to be sacrificed for BlackRock’s climate agenda. The time has come for BlackRock to come clean on whether it actually values our states’ most valuable stakeholders, our current and future retirees, r risk losses even more significant than those caused by BlackRock’s quixotic climate agenda.

Please respond by Friday, August 19, 2022.

Mark Brnovich

Doug Peterson Arizona Attorney General

Nebraska Attorney GeneralSteve Marshall

Leslie Rutledge Alabama Attorney General

Arkansas Attorney General Chris Carr

Lawrence G. Wasden Georgia Attorney General

Attorney General of IdahoTodd Rokita

Derek Schmidt Indiana Attorney General

Kansas Attorney General Daniel Cameron

Jeff Landry Kentucky Attorney General

Louisiana Attorney General Lynn Fitch

Eric Schmitt Mississippi Attorney General

Missouri Attorney General

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