- Texas comptroller Glenn Hegar announced that ten energy companies, including investing titan BlackRock, and 350 investment funds "boycott" fossil fuel companies in the state. As a result, some Texas government funds will have to divest.
- Hegar claimed that these financial institutions are using ESG initiatives as a proxy for political agenda setting.
- BlackRock said it objected to the ruling, and a University of Texas professor denounced it as a political stunt.
The move could force certain Texas government funds, such as retirement funds for state workers, to sell any shares in these companies. It also places these companies alongside lists of other classes of companies covered under Texas divestment statutes, such as companies with "links to foreign terrorist organizations" and ties with Iran and Sudan.
The list, which grows out of an investigation first announced in March, is an effort to publicly highlight companies that are, in Hegar's view, advancing agendas that threaten the energy industry in Texas, which is the top oil and natural gas producing state in the country. Texas produced 43% of the total crude oil produced in the United States in 2021 and 25% of its natural gas, according to the U.S. Energy Information Administration (EIA). Texas also has 31 petroleum oil refineries representing 32% of the nation's refining capacity, making it the state with the most refineries and refining capacity of any state in the country.
Hegar said the focus on environmental, social and corporate governance (ESG) standards in finance had become a proxy for political agenda setting.
"The environmental, social and corporate governance (ESG) movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy," said Hegar in a written statement published with the decision.
BlackRock has been both lauded for being both a leader in bringing awareness of the implications of climate change to Wall Street and for not following through on that initial leadership. In May, BlackRock said it would not vote for environmental and social shareholder proposals "that are unduly prescriptive and constraining" on corporate boards.
In response to the announcement from Hegar on Wednesday, BlackRock said it objected to the ruling.
"We disagree with the Comptroller's opinion. This is not a fact-based judgment. BlackRock does not boycott fossil fuels — investing over $100 billion in Texas energy companies on behalf of our clients proves that," a BlackRock spokesperson told CNBC in a statement.
The impact of the potential Texas divestment is less of a threat to the financial companies than is the potential precedent of financial investments becoming ever more politically motivated, according to James W. Coleman, a law professor at Southern Methodist University's Dedman School of Law.
"Texas is a huge, rapidly growing economy — bigger than that of Canada — so its investment decisions are important, but Texas pension funds aren't quite as big, compared to the state economy, as funds in other state such as California," Coleman told CNBC. "Ultimately, the real risk to financial companies is less about losing one investor and more about a political conflict spreading into investment decisions and splitting their customers."
David B. Spence, a law professor at The University of Texas at Austin School of Law who teaches energy law among other topics, said the move is a political stunt by Hegar.
"I think of it as a kind of performance for voters by elected politicians competing for votes in a party that increasingly rewards finding ways to stick your thumb in the eye of Democrats," Spence told CNBC. "It is a shame that climate change has become a partisan issue, particularly given strong concern about the issue among young Republicans. But as long as young Republican voters keep voting Republican, there really isn't much disincentive to do this kind of thing."
Spence noted that BlackRock had warned investors about climate change as an economic problem. "Climate change has become a defining factor in companies' long-term prospects," BlackRock CEO Larry Fink said in his 2020 letter to CEOs.
"Blackrock advised clients to attend to climate risk because they think it is economically rational to do so. So it is more than a little ironic that GOP politicians are punishing private sector actors for taking economically rational actions," Spence told CNBC. "It shows how hollow GOP rhetoric about 'letting the market work' and 'the nanny state' really is."