By Alejandra Martinez
Texas Tribune , December 20,2022
Republican lawmakers are interrogating investment companies for their shift to climate-friendly portfolios that recommend state employees and retirees cut ties with companies funded by fossil fuels. That’s because it’s now illegal in Texas.
Lawmakers serving on the Texas Senate Committee on State Affairs said during a public hearing Thursday in Marshall that these companies are not following Senate Bill 13, which was passed in 2021 and prohibits the state from contracting with or investing in companies that divest from oil, natural gas and coal companies.
The investment companies in the hot seat included BlackRock, State Street Global Advisors and Institutional Shareholder Services Inc.
Leaders of the investment companies were asked to address their role in initiatives like Climate Action 100+, which strives to ensure the largest corporate greenhouse gas emitters take action on climate change. They were also asked to address their participation in federal rulemaking on environmental, social and governance (ESG) standards and whether their policies may impact the state’s public pensions.
The company Vanguard had previously been required to attend the hearing, but The Financial Times reported earlier this week that the company’s recent departure from the Net Zero Asset Managers Initiative changed that.
Sen. Bryan Hughes, R-Mineola, who serves as the chair of the committee, said lawmakers are concerned that investment companies are recommending their clients reduce financial support for oil and gas companies.
“It’s about families. It’s about national security,” Hughes said. “We’ve learned … that foreign governments are involved in these decisions, and also other major state agencies are influencing investment decisions using Texas resources. It’s not right, and we’re here to shine a light on that.”
The law, filed by state Sen. Brian Birdwell, R-Granbury, during the last legislative session along with four other Republican state senators, defines divestment as refusing to do business with a fossil fuel company because that company does not commit to environmental standards higher than expected by federal and state law. If companies pull out of oil and gas investments, the state can shut them out of state contracts.
Texas state funds identified in the bill include the $46 billion Texas Permanent School Fund, the largest such K-12 fund in the U.S; the Teacher Retirement System of Texas, which manages nearly $165 billion in investments; and the Employees Retirement System of Texas and Texas Municipal Retirement System, which each manage $31 billion.
Sen. Lois Kolkhorst, R-Brenham, said at the hearing it might be time to find other investors — a move other states have made. Earlier this month, Florida yanked about $2 billion from BlackRock Inc., making it the largest move of its kind by an individual state, a bite back at investors that cut ties with or “boycott” energy and fossil fuel companies.
Hughes said that he, along with other lawmakers, spoke to representatives from Teacher Retirement System of Texas earlier this year and they notified them about Institutional Shareholder Services’ recommendations against investing in the development of Texas fossil fuel-based energy projects.
Sen. Paul Bettencourt, R-Houston, said investment banks’ decisions to be part of Climate Action 100 was a bad step as a corporate entity and that environmental benchmarks on their websites are leaning “activist” and not “agnostic.”
Bettencourt asked the investment companies if being part of environment initiatives created any bias when making decisions or recommendations to clients.
“We have one bias and that’s to get the best risk-adjusted returns for our clients,” Dalia Blass, senior managing director and head of external affairs of BlackRock’s global executive committee said at the hearing.
Blass told the committee that BlackRock is a significant investor in the energy sector, including in Texas companies like ExxonMobil, Valero and Phillips 66.
“We also have made significant private investments in Texas energy companies, ranging from a natural gas utility, to an energy storage company, to carbon capture,” Blass said. “As of the end of the last quarter, on behalf of our clients, we had $107 billion invested in public Texas energy companies alone.”
Environmental activists have called the Thursday hearing “political theater of fossil fuel interests.”
Casey Harrell, senior finance strategist with the watchdog group The Sunrise Project, said in a statement that investment companies “must stand up to Republicans’ harmful culture war.”
“These are the biggest asset managers in the world and their actions have implications for the global economy,” Harrell said. “They cannot bow to the fringe of one political party in the U.S. when the world needs meaningful and sensible climate action now.”
The Sunrise Project is pushing big finance companies to be more climate-responsible. Environmental activists have long called for Wall Street and university endowments to stop investing in fossil fuels, and several U.S. universities have complied.
“Texas Republicans would be wise to remember that the marketplace is increasingly moving in the direction of holding companies accountable on climate risk,” Jessye Waxman, senior campaign representative in the Sierra Club’s Fossil-Free Finance campaign, said in a statement.
While it’s unclear whether more legislation is on the way to block companies from shunning the oil and gas industry, Hughes said he will continue to keep investors accountable and expose them when they are not following the law.