Texas Terminates $8.5 Billion Investment with BlackRock Over Alleged Energy Boycott
The state of Texas has announced its termination of an $8.5 billion investment with BlackRock, citing the asset manager’s alleged boycott of energy companies. The move is in line with a 2021 state law that aims to distance Texas and its public funds from financial institutions that engage in this type of boycott.
The terminated contract is specifically related to the Texas Permanent School Fund (PSF), which manages approximately $1 billion in annual oil and gas royalties. Aaron Kinsey, Chairman of the Texas State Board of Education, emphasized that protecting Texas schools and complying with state law were the primary motivations behind the decision.
According to Kinsey, BlackRock’s leadership in the environmental, social, and governance (ESG) movement has had a detrimental impact on the state’s oil and gas economy. He argues that the company’s approach to energy companies contradicts Texas’ fiduciary duty to its residents.
This divestment represents the largest of its kind since Republican-led states started severing financial ties with BlackRock and other institutions that embrace ESG standards. The ESG movement advocates for diverting investments away from traditional energy industries and towards green energy to combat climate change.
Despite gains in popularity, the ESG movement has faced significant opposition from both the energy industry and lawmakers at state and federal levels. To counter these efforts, Texas passed Senate Bill 13 in 2021, which requires the state comptroller to identify financial companies that boycott fossil fuel companies.
BlackRock, which manages over $10 trillion in assets, has defended itself against accusations of boycotting energy companies. The firm asserts that it remains invested in traditional energy industries while also considering ESG concerns to meet the diverse investment objectives of its clients.
Texas’ termination of its contract with BlackRock has been commended by those who have led opposition to ESG policies. Derek Kreifels, CEO of the State Financial Officers Foundation, and Will Hild, Executive Director of Consumers’ Research, view it as a significant blow against what they perceive as the questionable practices of the ESG movement.
Several other states, including Arizona, Arkansas, Florida, Louisiana, Missouri, South Carolina, Utah, and West Virginia, have also announced similar divestments. The largest prior divestment of $2 billion was made by Florida in December 2022, as announced by Florida Chief Financial Officer Jimmy Patronis.
The implications of Texas’ decision to sever ties with BlackRock raise important questions about the future of ESG investing and its potential impact on the energy industry. As more states express a desire to limit their financial connections with companies that embrace ESG standards, we may see increased scrutiny and regulation in this area.
Furthermore, the ongoing debates surrounding ESG policies highlight the broader tensions between environmental concerns and economic growth. Balancing these competing interests will likely require careful consideration of long-term sustainability and the evolving needs of industries such as oil and gas.
It remains to be seen whether more states will follow Texas’ lead and take similar actions against financial institutions that promote ESG standards. In response to these developments, the investment industry may need to adapt its strategies and find ways to reconcile the demands of investors with the potential impacts on traditional industries.
As the world continues to grapple with climate change and the need for sustainable investments, the ESG movement will undoubtedly remain a contentious topic. Industry leaders, policymakers, and stakeholders must closely monitor these trends and work together to find a balance that both addresses environmental concerns and supports economic growth.