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Greenwashing Accusations: ClientEarth Targets BlackRock's Fossil Fuel Investments in ‘Sustainable’ Funds

Loes van Dijk

ClientEarth announced today it has filed a complaint with the French Autorité des Marchés Financiers (AMF), urging an investigation into BlackRock’s alleged misleading sustainability claims. The environmental organisation accuses BlackRock of engaging in deceptive practices by mislabelling its investment products as ‘sustainable’.  ClientEarth is calling on the AMF to compel BlackRock to either reallocate its ‘sustainable’ funds away from fossil fuel companies or cease labelling them as such.


A small green plant grows out of a glass filled with coins, symbolising growth and financial success.

 

Greenwashing Allegations Against BlackRock


The complaint follows an analysis conducted by Reclaim Finance, which found that 18 of BlackRock’s actively managed retail funds, marketing in France under the banner of sustainability, collectively hold over $1 billion in investments tied to fossil fuel companies. These include industry giants such as ExxonMobil, Shell, Chevron, BP, and TotalEnergies – firms notorious for expanding their fossil fuel operations despite global commitments to curb emissions under the Paris Agreement. The funds’ fossil fuel exposure ranges from 1% to 27% of their assets under management, with much of the capital directed toward companies developing new fossil fuel capacity.

 

ClientEarth argues that BlackRock’s practices amount to greenwashing – a widespread issue in the financial industry, where sustainability claims mislead investors into believing they are supporting environmentally responsible initiatives. According to Alex Bennett, a ClientEarth lawyer, “There is a high consumer demand for sustainable investment products, but it’s an open secret within the finance industry that greenwashing is rife.” Moreover, “[p]olls have shown that over half of French investors consider sustainability when making financial decisions, with 75% indicating that the environmental impact of their investments is crucial”. As a result, investors are unknowingly funnelling capital into fossil fuel expansion through BlackRock’s allegedly misrepresented funds.

 

The complaint also references new guidelines issued by the European Securities and Markets Authority (ESMA), which state that it is incompatible for ‘sustainable’ funds to continue investing in companies deriving significant revenue from fossil fuels. These guidelines, expected to take full effect in 2025, will impose stricter naming conventions on funds, requiring greater alignment between fund marketing and actual investment practices.

 

The AMF has intensified its focus on sustainable finance as part of its 2023-2024 supervisory priorities. The regulator reviewed how asset management companies market sustainable funds, identifying areas of improvement. AMF’s key findings include inconsistencies in the marketing materials for sustainable funds, particularly foreign ones, emphasising the need to ensure clarity and accuracy to prevent greenwashing. The AMF aims to increase transparency and accountability in sustainable finance.


Regulatory Frameworks Governing Sustainable Funds in the EU and UK


The regulation of sustainable investment funds has become a crucial issue due to increased investor interest in environmentally responsible financial products. In response, different jurisdictions have tightened their legal frameworks to curb greenwashing and provide clear guidance on what constitutes a genuinely sustainable fund.


European Union Legal Framework


In the European Union (EU), ESMA has established guidelines to address greenwashing concerns and ensure transparency in the marketing of sustainable funds. ESMA recently issued its final guidelines on when funds can legally describe themselves as 'sustainable' or use any Environmental, Social, and Governance (ESG)-related terms in their names. Under these rules, any fund using ESG or sustainability-related language must allocate at least 80% of its assets to investments that meet binding ESG objectives.

 

A notable feature of the guidelines is the inclusion of a category for funds using transition-related terms. This category allows funds to invest in companies deriving part of their revenue from fossil fuels if these companies are demonstrably transitioning towards greener practices. By requiring that such funds still meet the 80% sustainability threshold, ESMA seeks to balance the promotion of green investments with realistic economic transitions. Fund managers must also provide clear and measurable criteria for how they meet ESG objectives. These guidelines are set to take full effect in May 2025. All existing funds will be required to comply within nine months, while new funds must adopt the standards immediately.


United Kingdom Legal Framework


Similarly, the United Kingdom (UK) has introduced new regulations aimed at enhancing transparency for investors interested in sustainable funds. Set to come into effect from December 2024, the UK’s framework requires investment providers to offer clearer, more accessible information about the sustainability objectives of their funds. Funds that meet specific criteria will be eligible to use one of four sustainability labels: Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals. These labels are designed to help investors understand the focus of their investments, whether aimed at directly supporting environmental and social sustainability or contributing to companies that are on a credible path towards sustainability improvements.

 

Funds without labels that make claims like “green” or “low carbon” will still need to disclose why they do not meet the standards for formal labels and provide detailed investment information. The aim is to create a clear differentiation between genuinely sustainable products and those that are merely using environmental rhetoric without substantive commitment to ESG objectives.


The Financial Industry: The Next Frontier for Climate Litigation


The financial industry is emerging as one of the next major sectors likely to face increased climate litigation, extending beyond accusations of greenwashing to direct accountability for contributing to climate change. An important case signalling this shift is the litigation brought by Milieudefensie against ING, the largest Dutch bank. Milieudefensie argues that ING’s financing of fossil fuel projects significantly contributes to climate change. Despite attempts to persuade ING to change course, the bank allegedly continues to finance polluting companies. The outcome of this ING lawsuit could set a precedent for other financial institutions. If successful, the case may lead to more legal actions against banks and asset managers, prompting them to reevaluate their investment strategies in light of the legal and climate risks.

 

However, the challenges of navigating ESG for asset managers must also be noted. Legal action taken by the State of Tennessee in the United States against BlackRock illustrates the backlash against ESG-focused investing. In December 2023, the Tennessee Attorney General filed a civil enforcement complaint against BlackRock, alleging that the firm downplayed the extent to which ESG considerations inform its investment strategies and their impact on financial performance. This lawsuit claims that BlackRock misled consumers about its ESG activities and sought to appeal to both pro-ESG and anti-ESG audiences, putting the firm in a precarious position amid shifting public and political dynamics. The complaint cites violations of the Tennessee Consumer Protection Act, arguing that BlackRock falsely conveyed that certain funds do not incorporate ESG considerations and overstated the financial benefits of such factors.

 

Despite the contrasting approaches to litigation in the financial sector, a common thread emerges: the need for transparency. Only through genuine transparency can trust be built with consumers and investors, ensuring a responsible transition toward a more sustainable financial landscape.

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