In a significant move, the State of Texas has announced the termination of its massive $8.5 billion investment with BlackRock, a trillion-dollar asset manager. The decision stems from Texas’ determination that BlackRock is engaging in a boycott of energy companies, which goes against the state’s interests.
According to Aaron Kinsey, the Chairman of the Texas State Board of Education, the Texas Permanent School Fund (PSF) has delivered a notice to BlackRock, informing them of the termination. This action is in line with a 2021 state law aimed at distancing Texas and its large public purse from financial institutions that boycott the oil and gas sector.
Kinsey emphasized that the PSF has a fiduciary duty to protect Texas schools, particularly by safeguarding and growing the approximately $1 billion in annual oil and gas royalties managed by the Texas General Land Office. Termination of BlackRock’s contract ensures the PSF’s full compliance with Texas law.
The decision to terminate the contract with BlackRock is motivated by the firm’s prominent role in the Environmental, Social, and Governance (ESG) movement, which Kinsey believes has negatively impacted Texas’ oil and gas economy and the companies that generate revenue for the PSF. Texas has worked diligently to grow the fund, which supports the state’s public schools, and believes that BlackRock’s actions are incompatible with its fiduciary duty to Texans.
The divestment from BlackRock represents a substantial portion of the $53 billion Texas PSF, a fund established in the 19th century to benefit the state’s public schools. This move marks the largest divestment of its kind since Republican-led states began severing financial ties with BlackRock and other institutions over their pursuit of ESG standards.
The ESG (Environmental, Social, and Governance) movement, gaining momentum in recent years, advocates for diverting investments away from traditional energy industries towards green energy sectors as a means to combat global warming. However, the movement has faced significant resistance from both the energy industry and lawmakers at state and federal levels.
In response to this pushback, Texas enacted Senate Bill 13 in 2021, mandating its state comptroller to compile a list of financial companies found to boycott fossil fuel companies. Comptroller Glenn Hegar updated this list in October, including BlackRock and several funds managed by the firm. Hegar has urged the Texas Permanent School Fund (PSF) and five state pension funds to sever ties with BlackRock.
Texas State Board of Education Chairman Aaron Kinsey praised the termination of the $8.5 billion investment with BlackRock, stating that it protects the state’s financial future from attacks by Wall Street. Kinsey emphasized the importance of safeguarding the PSF to support opportunities for future generations of Texas students.
In response to accusations of boycotting energy companies, BlackRock, managing over $10 trillion in assets, defended its practices by highlighting its investments in traditional energy companies and its consideration of ESG factors due to diverse client objectives. BlackRock also cited its partnership with Occidental Petroleum on a carbon capture project in Texas.
Derek Kreifels, CEO of the State Financial Officers Foundation, and Will Hild, executive director of Consumers’ Research, praised Texas’ action, denouncing ESG policies and accusing BlackRock of misusing client funds for political agendas. They hailed Texas’ divestment as a blow against ESG’s perceived ideology.
Prior to Texas’ decision, several other states including Arizona, Arkansas, Florida, Louisiana, Missouri, South Carolina, Utah, and West Virginia had announced similar divestments from BlackRock. Critics argue that such actions harm consumers, citing potential economic losses and job cuts.
Overall, Texas’ move to distance itself from BlackRock reflects broader tensions surrounding ESG initiatives and underscores the complexities of balancing financial interests with environmental and social concerns.