The asset manager’s policies are making it a target for attorneys general and state treasurers around the country. Was the virtue-signaling worth it? The world's largest asset manager, BlackRock Inc., has lodged itself securely between a blue-state rock and a red-state hard place because of its environmental, social, and governance ( ESG ) investment criteria.

While left-leaning states have long supported BlackRock's ESG investing, conservative states increasingly object. In August, 19 red-state attorneys general sent BlackRock CEO Larry Fink a letter stating that BlackRock's ESG investing violates their laws governing fiduciary duties. According to these AGs, investor returns must be a fiduciary's sole focus, and BlackRock is sacrificing those returns to advance its net-zero carbon emissions agenda.

The AGs' concerns are not unfounded. BlackRock is a net-zero zealot. Its Path to Net Zero website states that the transition to a net zero world is the shared responsibility of every citizen, corporation, and government and describes at length BlackRock's commitment to that transition. But is that commitment really in BlackRock's clients' best financial interests?

As John Kerry, President Biden's climate envoy, stated in a recent interview, some of BlackRock's clients want the best return they can get, and you don't get that necessarily from climate related investments. He's right, of course. Fink's own 2022 letter to CEOs conceded that [w]e need to be honest about the fact that green products often come at a higher cost. Thanks for the honesty, but you don't need an accounting degree to know that high-cost/low-return climate policies will reduce a company's profits – and its investors' returns.

So, perhaps it's no surprise that, since January of 2022, red-state treasurers in Missouri, South Carolina, Louisiana, Utah, Arkansas, and West Virginia have announced the divestment of over $3 billion in assets from BlackRock's management because of its ESG and net-zero policies.

That looks to me like the start of a trend, and evidently, Fink agrees. In an effort to reassure red states and other worried investors, BlackRock recently launched Setting the Record Straight, a website claiming that it offers a broad choice of investment products designed to meet its clients' investment goals and reflect their priorities. But will BlackRock offer products that encourage expanded fossil-fuel production to meet the investment goals and priorities of its red-state clients? Personally, I'm skeptical.

BlackRock does invest in fossil-fuel companies. The problem is that it then pressures them to produce and implement plans to arrive at net zero – including dumping their fossil-fuel assets – or as was the case with Exxon, votes in favor of director nominees proposed by an environmentalist hedge fund. It's all part of advancing BlackRock's net-zero agenda and crippling fossil-fuel production. But such actions do not reflect red-state investment goals or priorities. In fact, the red-state AGs' letter proposed maximizing investor returns by opportunistically purchasing fossil fuel assets discarded by companies seeking to meet net zero commitments.

BlackRock certainly could offer products that advance fossil-fuel production. If the current energy crisis has taught us anything, it's that fossil fuels are, and will for the foreseeable future be, critical to worldwide peace and prosperity. Year to date, 19 of the 20 best-performing companies in the S&P 500 are either fossil-fuel producers or otherwise connected with fossil fuels. All that to say, investing in increased fossil-fuel production simply makes financial sense. But would its blue-state clients tolerate BlackRock offering such products? No way.

In fact, the blue-state reaction is already beginning. Concerned that BlackRock might moderate its net-zero stance to retain red-state clients following the AGs' letter, 14 blue-state financial officers launched a website ironically criticizing red states for the negative financial consequences of blacklisting financial firms that don't agree with their political views and failing to acknowledge that climate change is real.

Everybody knew this was a signal to BlackRock and other financial firms not to back away from ESG and net zero. A week later, New York City comptroller Brad Lander went and said the quiet part out loud. He wrote to Fink, concerned that BlackRock might moderate its commitment to net zero to the detriment of both New York City pensions (which fall under his purview) and our planet (which does not). Lander wants BlackRock to make its net-zero commitment clear across its entire portfolio, dedicate itself to keeping fossil fuel reserves in the ground, and work to end lending and insurance for new fossil fuel supply projects.

Lander also noted, with little subtlety, that he will be prudently reassessing the city's business relationship with BlackRock, through the lens of our climate responsibilities. Talk about blacklisting financial firms that don't agree with your political views! BlackRock manages approximately $43 billion for New York City.

And that's why BlackRock is between a rock and a hard place. If it continues employing ESG investment criteria, it will continue losing red-state business and risks a raft of lawsuits in red-state courts for violating its fiduciary obligations. All it takes is one punitive-damages award to make that very expensive. But if it abandons ESG, it loses blue-state business and risks the wrath of blue-state regulators, who don't like Wall Street firms very much anyway. And if BlackRock tries to split the baby by preserving ESG in form while abandoning it in substance, it risks alienating both sides.

All in all, it's a tough situation, which is most likely going to get worse. Hopefully, the virtue-signaling was worth it.

Andy Puzder is the former CEO of CKE Restaurants and a senior fellow at the Pepperdine University School of Public Policy.