Texas banned local and state government entities from holding stakes in 10 financial companies and nearly 350 investment funds for allegedly boycotting the oil and natural gas industry.

Texas

Texas Comptroller Glenn Hegar on Wednesday posted a list of companies and funds that his department determined had shunned oil and gas companies as part of a broader effort to polish their environmental, social and governance (ESG) bona fides. Wall Street firms and global peers are under pressure from investors to demonstrate they are shifting away from fossil fuels and toward renewable energy to help combat change.

The oil and gas industry, as well as several Texas lawmakers, argued that a sudden shift away from fossil fuels is unrealistic and could cause widespread energy shortages. They successfully championed a 2021 law that requires Hegar to make the judgment calls about financial companies’ positions on oil and gas. State and local governments, with the potential for rare exceptions, are expected to divest from the blacklisted companies and funds unless Hegar removes them upon subsequent reviews.

“My greatest concern is the false narrative that has been created by the environmental crusaders in Washington, DC, and Wall Street that our economy can completely transition away from fossil fuels, when, in fact, they will be part of our everyday life into the foreseeable future,” Hegar said. “A complete divestment of the industry is not only impractical and illogical but runs counter to the economic well-being of Texas and our citizens.”

Under the state law, companies and funds on Hegar’s list are warned first. If they continue to shun oil and gas companies, based on subsequent reviews, government entities in the state would have to sell their stakes. They could do this over time to avoid losing money. The comptroller’s office continues to review information on an ongoing basis, and the list may be subject to change as often as quarterly, Hegar said.

The law is significant because it covers Texas public pension plans, which are among the biggest in the country. The Teacher Retirement System of Texas, for example, held more than $200 billion of assets in 2021.

Other entities subject to the investment prohibitions and divestment requirements include the Employees Retirement System of Texas, the Texas Municipal Retirement System, the Texas County and District Retirement System, the Texas Emergency Services Retirement System and the Permanent School Fund.

“A diverse energy portfolio is necessary for Texas to meet our future energy needs, and a vibrant Texas oil and gas industry is a stabilizing force in today’s economic and geopolitical environment,” Hegar said.

Forming A Trend?

The Texas action follows Florida’s move on Tuesday (Aug. 23) to bar the state’s nearly $200 billion pension fund from considering ESG factors in its investment decisions. The Texas blacklist also follows a similar law in West Virginia. That state banned five banks in July. 

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To be sure, national banks such as JPMorgan Chase and Well Fargo & Co. – among the banks banned in West Virginia – have pulled back on oil and gas lending amid pressure from investors to combat climate change. But not all lenders have soured on the industry. Several banks during second-quarter earning season said they had increased lending to exploration and production companies.

Chairman Wayne Christian of the Railroad Commission of Texas, said he and other pro-energy industry officials, along with business leaders in energy states, were campaigning for more actions along the lines of Texas’ prohibition. Christian also sent a letter to the U.S. Securities and Exchange Commission opposing its proposed climate-related disclosure rules for businesses seeking to governmentally standardize ESG investment rules.

“I’m thrilled to see my conservative colleagues join the defense against woke Wall Street bankers,” Christian said of the Texas blacklist. “Rally the troops: Here in Texas is where we will draw the line against ESG’s detrimental impact on oil and gas.”

In contrast, the Investment Company Institute, an investment industry association, said the new Texas law would ultimately hurt pension plans and the Texas police, firefighters, teachers and other state civil servants they represent.

“Texas state pension managers have a fiduciary duty to act in the best interest of state employees. However, a state-mandated boycott of certain funds could restrict their ability to choose from the full range of available investments on behalf of Texas state retirees. This decision impacts billions of dollars in retirement savings for many Texans,” the association said.

The blacklisted companies in Texas include BlackRock Inc., the world’s largest asset manager, as well as BNP Paribas SA, Credit Suisse AG, Danske Bank A/S, Jupiter Fund Management PLC, Nordea Bank Abp, Schroders PLC, Svenska Handelsbanken AB, Swedbank AB and UBS Group AG. Another 348 investment funds that belong to banks in the United States and Europe were also put on Hegar’s list.