BlackRock Battles Texas Again Over Divestments

He’s at it again. Texas Comptroller Glenn Hegar (R) concluded this week that several companies are in violation of a new state law. They’re accused of “boycotting” the directive that requires fossil energy industry investment. If found culpable, BlackRock and 9 European firms may be prohibited from conducting significant business with Texas state agencies.

Hegar also identified an additional 350 individual funds which may be at fault for law violations. Many of those companies dispute the claim.

Other financial firms cited in the censure include Credit Suisse Group, BNP Paribas SA, UBS Group AG, and Schroders PLC.

Senate Bill 13 limits Texas governmental organizations from entering into certain contracts with investment companies that have restricted ties with carbon emitting energy companies. The law was passed last year to protect Texas’ big oil and gas sectors and their legislative campaign donations.

It’s a case of it’s-who-you-know, though. Hegar’s list does not include JPMorgan Chase & Co or Wells Fargo & Co. These and several other top US and European investors had lobbied hard (read: made big donations) to be excluded.

The comptroller sent inquiries to more than 150 companies in March and April, requesting information on whether they were shunning the oil and gas industry in favor of sustainable investing and financing goals. Business actions such as pledges they had made to investor groups to reduce emissions were analyzed. Climate Action 100+, an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change, was one such identified group. If the investment firm held rigorous emission reduction targets for portfolio companies, they were set aside as questionable and worth further scrutiny.

The Texas clean energy inquisition is part of a larger effort around the country to undermine divestment, which has real potential to convert the fossil fuel industry into a disintegrating body of stranded assets.

Hegar’s Hysterics

None of these Texas state investment investigations was done in secret or behind closed doors: in an interview, Hegar fully admitted to the investigative process. The 10 identified companies “are boycotting the oil and gas industry per the research and documentation that we’ve found. It’s as simple as that,” Hegar sniped.

Governmental entities should use the list as a “filtration system” when entering contracts, Hegar added. “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,” he decried, “but, instead, use their financial clout to push a social and political agenda shrouded in secrecy.”

Hegar said in the statement that financial institutions are guilty of “doublespeak” as they “engage in anti-oil and gas rhetoric publicly yet present a much different story behind closed doors.” They must define any continued relationships in detail,  such as — say it isn’t so — divestment, even if it conflicts with their pledged fiduciary duties.

BlackRock Responds — Weakly

“Elected and appointed public officials have a duty to act in the best interests of the people they serve,” BlackRock responded to Hegar’s accusations. It is the world’s largest money manager with some $8.5 trillion in total assets, including about $20 billion it runs for public funds in Texas. For example, like many teacher retirement funds around the country, Texas’ own $200 billion Teacher Retirement System is the largest state public pension fund. It, too, now has 30 days to report the kinds of investments they hold with the listed financial firms. After that time period, it and other state entities will be required to notify the comptroller of any holdings on the divestment list.

“Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees,” BlackRock states, “is not consistent with that duty.” It’s interesting to note that BlackRock and the European firms continue to hold fossil fuel stocks. They blame the divestment actions on their clients, who have pushed for ESG assets.

BlackRock holds the ire of critics from both sides of the political aisle: the conservative right argues they’re not loyal enough to the fossil fuel companies that made them prosperous, and climate activists stomp that BlackRock needs to do a whole lot more to mitigate global emissions.

Texas is the nation’s top producer of crude and natural gas. The wager is that, if Texas pressures investment firms recoil when questioned about clean energy investment preferences, then new oil fields will continue to be located and tapped. Drones and drilling rigs will be purchased. Hard-to-reach deep-sea sites will be pursued. Crude oil refineries and trunk or transmission pipelines will be built.

And the oil and gas industry will continue to reap extraordinary profits for shareholders in fossil fuel extraction as markets will grow in response to the relatively low commodity prices that are being fostered by new oil and gas supplies.

Texas ESG Scrutiny is One Piece of a Much Larger Fossil Capitalism Picture

Now all eyes are on other Republican state officials around the country to see if they, too, will pursue a campaign against corporate policies on environmental, social, and governance (ESG) issues. States including Oklahoma, West Virginia, and Kentucky have passed legislation this year targeting companies that engage in “boycotts” of the oil and gas industry. In July, West Virginia said it wouldn’t award state banking contracts to 5 firms: JP Morgan, Wells Fargo, Goldman Sachs, BlackRock and Morgan Stanley.

On Tuesday, Florida Governor Ron DeSantis eliminated ESG considerations for the state’s pension funds, passing a resolution along with other officials specifying that investments “must be based only on pecuniary factors.”

The SEC announced plans in March to require companies to disclose their climate risks within their operations as they compiled their annual reports and other required documents. Auditors or other experts will then analyze the data within those reports. In July, attorneys general from 24 Republican-controlled states stretching from Alaska to West Virginia wrote to the SEC, calling the agency’s climate disclosures plan “an ill-advised misadventure into environmental regulation.” At the core of the dispute is transparency over emissions produced by businesses in their supply chain, or their so-called Scope 3 emissions.

Final Thoughts about Texas & Divestment

It’s hard to report objectively about this Texas law that prohibits divestment. Exxon was aware of climate change as early as 1977, but this knowledge did not prevent the world’s largest oil and gas company from spending decades refusing to publicly acknowledge climate change and even promoting climate misinformation.

The IPCC has told us that human-induced climate change is causing dangerous and widespread disruptions in nature and is affecting the lives of billions of people around the world, despite efforts to reduce the risks.

Efforts to demand divestment from fossil fuels have arisen in higher education for more than a decade now. The international fossil fuel divestment movement has been historically grounded in an argument that colleges and universities have a moral obligation to assume a standard of appropriate behavior — and that means to withdraw investments from fossil fuel assets and reinvest them into climate-friendly solutions. This “social license to operate” norm has fundamentally questioned the legitimacy of the fossil fuel industry because of its major impact on climate change.

Exxon, Chevron, Shell, BP, and API spent a combined $452.6 million lobbying the US federal government since 2011. The top oil and gas companies spent more than $12.4 million on lobbying in the first quarter of 2022 — about $1 million more than they spent by this time last year.

Texas isn’t being clever or insightful or prudent: it is being a pawn in a decades-long endeavor to maintain the rare wealth of fossil fuel billionaires at our expense.

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