Texas pulls $8.5 billion from BlackRock, dealing a significant blow to the ESG movement

The state of Texas is terminating a large $8.5 billion investment with trillion-dollar asset manager BlackRock after determining that the corporation is involved in an energy boycott.

Texas State Board of Education Chairman Aaron Kinsey initially shared an announcement with FOX Business, stating that the so-called Texas Permanent School Fund (PSF) sent a notification to BlackRock on Tuesday, advising the New York City-based corporation of the action. According to Kinsey, the decision was made in compliance with a 2021 state law aimed at distancing the state and its enormous public purse from financial institutions boycotting the oil and gas industry.

Kinsey released a statement on Tuesday, stating that the Texas Permanent School Fund has a fiduciary duty to protect Texas schools by safeguarding and growing the approximately $1 billion in annual oil and gas royalties managed by the Texas General Land Office. “Terminating BlackRock’s contract ensures PSF’s full compliance with Texas law.”

“BlackRock’s dominant and persistent leadership in the ESG movement has a significant negative impact on our state’s oil and gas economy and the companies that generate revenue for our PSF.” Texas and the PSF have worked hard to increase the size of this fund in order to develop Texas schools,” he added. “BlackRock’s destructive approach toward the energy companies that this state and our world depend on is incompatible with our fiduciary duty to Texans.”

The divestment represents a significant portion of the $53 billion Texas PSF, a fund established in the nineteenth century to support the state’s public schools. The measure is also by far the greatest of its kind since Republican-controlled governments began cutting links with BlackRock and other financial companies over their pursuit of so-called environmental, social, and governance (ESG) norms.

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In the fight against global warming, the ESG movement, which has gained traction in recent years, advocates for investments to shift away from traditional energy companies and toward green energy industries. However, the ESG movement has encountered strong opposition from both the energy business and state and federal legislators.

As part of such a reaction, Texas approved Senate Bill 13 in 2021, which requires the state comptroller to compile a list of financial institutions that boycott fossil fuel corporations. Texas Comptroller Glenn Hegar most recently updated the list in October, adding BlackRock and other funds run by the firm, and has urged the Texas Permanent School Fund, as well as five state pension funds, to cut connections with the asset manager.

“BlackRock is helping millions of Texans invest and save for retirement,” a BlackRock spokesperson told FOX Business. “On behalf of our clients, we’ve invested more than $300 billion in Texas-based companies, infrastructure and municipalities, including $125 billion invested in the energy sector, including a $550 million joint venture with Occidental. We recently hosted an energy summit in Houston designed to explore how to strengthen Texas’ power grid.”

“Today’s unilateral and arbitrary decision by Board of Education Chair Aaron Kinsey jeopardizes Texas schools and the families who have benefited from BlackRock’s consistent long-term outperformance for the Texas Permanent School Fund,” BlackRock added in a statement later Tuesday. “The decision ignores our $120 billion investment in Texas public energy companies and defies expert advice. As a fiduciary, politics should never outweigh performance, especially for taxpayers.”

“Today marks a significant advancement for the Texas PSF and our state as a whole. “The PSF will not sit idly by while Wall Street attacks our financial future,” Kinsey declared Tuesday. “This bold action helps ensure our PSF remains permanent and will continue to support bright futures and opportunities for generations of Texas students.”

BlackRock, which manages more than $10 trillion in assets, has sought to defend itself in recent months against accusations that it is boycotting energy companies, stating that it remains invested in traditional energy companies but considers ESG issues because it serves clients with a variety of investment goals. Furthermore, the company collaborated with large energy company Occidental Petroleum late last year on a carbon capture project in Ector County, Texas.

Derek Kreifels, CEO of the State Financial Officers Foundation, and Will Hild, executive director of Consumers’ Research, who have led national resistance to ESG laws, applauded Texas’ approach.

“For years, under Larry Fink’s leadership, BlackRock has misused customer assets to advance a political agenda. Nowhere was this more egregious than in Texas, where BlackRock was attempting to destroy the native oil and gas business while managing funds based on royalties from the same industry,” Hild noted. “A more flagrant violation of fiduciary duty is difficult to imagine.”

Hild claims that Texas’ divestment sends a “clear message” to “Wall Street elites that people can no longer be bullied into complying with ESG’s destructive ideology.”

Prior to Tuesday’s announcement, Arizona, Arkansas, Florida, Louisiana, Missouri, South Carolina, Utah, and West Virginia all announced similar divestments. Florida CFO Jimmy Patronis announced the largest sale of $2 billion in December 2022.

Some critics of the governments’ initiatives to distance themselves from BlackRock and other asset managers claim the actions damage consumers. For example, a report issued last week by the Texas Association of Business Chambers of Commerce Foundation found that Texas’ ‘Fair Access’ legislation will result in $668.7 million in lost economic activity and 3,034 fewer full-time, permanent jobs.

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