A group of 15 Republican state attorneys general has recently voiced concerns regarding the independence of BlackRock’s mutual fund directors, raising questions about their ability to act autonomously from the asset management giant. This development is part of the attorneys’ broader efforts to restrict the consideration of environmental, social, and governance (ESG) factors by companies and investors.

This development has sparked a heated debate within the financial industry, with stakeholders on both sides offering differing perspectives on the matter. The attorneys general argue that the presence of BlackRock fund trustees who also serve as directors of companies in which BlackRock holds a significant stake undermines the independence of these directors. They assert that the potential financial relationships between BlackRock and these companies create conflicts of interest and raise doubts about the directors’ ability to act in the best interests of the mutual fund investors.

Critics of the attorneys’ concerns argue that well-paid mutual fund directors are more than capable of acting independently, despite their relationships with asset management companies like BlackRock. They contend that these directors possess the necessary expertise, experience, and ethical standards to make impartial decisions on behalf of the investors. Moreover, they emphasize that the oversight and regulatory framework governing mutual funds are designed to ensure accountability and protect the interests of investors.

Furthermore, the attorneys general highlight the extensive responsibilities shouldered by BlackRock fund directors, who are tasked with overseeing multiple funds. They argue that this exceeds BlackRock’s own guidelines on board membership, known as “overboarding,” which are intended to prevent individuals from being spread too thin across various directorship roles. According to the attorneys general, the significant workload of these directors may impede their capacity to adequately fulfill their fiduciary duties to the mutual fund investors.

The concerns were outlined in a letter dated July 6, which was provided to Reuters by a representative of Montana Attorney General Austin Knudsen. The letter addressed ten individuals nominated to a board responsible for overseeing BlackRock’s closed-end mutual funds, as listed in a filing by the company.

The attorneys general sought information pertaining to potential financial relationships that could potentially compromise the independence of these directors. Of particular concern were instances where BlackRock fund trustees also served as directors of companies in which BlackRock held more than a 5% stake, as these connections could undermine their ability to act independently. Additionally, the attorneys general pointed out that BlackRock fund directors were responsible for overseeing numerous funds, surpassing the company’s own guidelines on board membership known as “overboarding” for public companies.

Critics have previously raised similar concerns about the capacity of well-paid mutual fund directors to advocate independently. The attorneys general have extended these concerns in light of BlackRock’s position on ESG issues, including its call for portfolio companies to address climate change.

In their letter, the attorneys general stated, “It strains credulity that a director of a mutual fund would not feel pressure against standing up to BlackRock’s ESG agenda—even when it is not in the financial interests of the fund’s shareholders.”

Republican state attorneys general have previously expressed reservations about how major asset managers, including BlackRock, exercise their proxy voting power at corporate annual meetings. They have also demanded transparency regarding the strategies employed by these firms to address climate change.

As of now, BlackRock has not yet provided a formal response to the concerns raised by the attorneys general. The issue of independence among mutual fund directors and their ability to make impartial decisions remains a significant topic within the investment landscape, particularly as discussions surrounding ESG considerations continue to gain momentum.