Texas bans financial companies from doing business with state agencies

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Texas banned 10 financial firms from doing business with the state after Comptroller Glenn Hegar said Wednesday that they did not support the oil and gas industry.

Hegar, a Republican running for reelection in November, banned BlackRock Inc., and other banks and investment firms — as well as some investment funds within large banks such as Goldman Sachs and JP Morgan — from entering into most contracts with state and local entities after Hegar’s office said the firms “boycott” the fossil fuel sector.

Hegar sent inquiries to hundreds of financial companies earlier this year requesting information about whether they were avoiding investments in the oil and gas industry in favor of renewable energy companies. The survey was a result of a new Texas law that went into effect in September and prohibits most state agencies, as well as local governments, from contracting with firms that have cut ties with carbon-emitting energy companies.

State pension funds and local governments issuing municipal bonds will have to divest from the companies on the list, though there are some exemptions, Hegar said.

“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, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” Hegar said in a written statement on Wednesday.

New York-based BlackRock, which has publicly embraced investing more in renewable energy, criticized Hegar’s decision.

“This is not a fact-based judgment,” a spokesperson for the company said in a written statement. “BlackRock does not boycott fossil fuels — investing over $100 billion in Texas energy companies on behalf of our clients proves that.

“Elected and appointed public officials have a duty to act in the best interests of the people they serve,” the spokesperson added. “Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees, is not consistent with that duty.”

The other nine companies banned completely are: BNP Paribas SA, a French international banking group; Swiss-based Credit Suisse Group AG and UBS Group AG; Danske Bank A/S, a Danish multinational banking and financial services corporation; London-based Jupiter Fund Management PLC, a fund management group; Nordea Bank ABP, a European financial services group based in Finland; Schroders PLC, a British multinational asset management company; and Swedish banks Svenska Handelsbanken AB and Swedbank AB.

The funds within larger companies are aimed at sustainable investing, such as Goldman Sachs’ “Paris-aligned Climate US Large Cap Equity ETF” and JP Morgan’s “U.S. Sustainable Leaders Fund.”

Texas energy experts said the intent of the law, and Wednesday’s announcement, was to punish financial firms that don’t want to invest in the backbone of Texas’ economy — oil and gas.

“But at the end of the day, it’s all about a rate of return,” said Ed Hirs, an energy economist at the University of Houston. “Quite honestly, fossil fuel companies, in particular oil and gas companies, have not been great performers in the (stock market) prior to this year.”

The Lone Star Chapter of the environmental group Sierra Club said Hegar’s “climate-denying publicity stunt will be costly for taxpayers.”

​​“Major financial institutions like the ones on this list are beginning to recognize that investments in fossil fuels bring significant risk in the face of an inevitable clean energy transition, and that addressing the financial risks of the climate crisis is essential to good business,” said Sierra Club Fossil-Free Finance Campaign Manager Ben Cushing. “The fact that the Texas Comptroller has arbitrarily picked a handful of companies that, despite their climate commitments, continue to have massive fossil fuel investments, shows that this is nothing more than a political stunt at Texas taxpayers’ expense.”

James Coleman, an energy law professor at Southern Methodist University, said there is political pressure driving both sides of this debate.

“Not just from those hoping to reign in fossil fuels, but also from those worried that moving away from fossil fuels is an economic harm,” Coleman said.

But Coleman said that “whenever the state limits the potential world that it can do business with, that potentially leaves some returns on the table.”

The actual impact on Texas taxpayers is hard to predict, said Felix Mormann, a Texas A&M University School of Law professor who studies energy and climate change. He called Wednesday’s move “a symbolic act by the Comptroller to protest the rise of ESG investing.”

“Will this announcement give a boost to Texas oil and gas companies? Morally, perhaps,” Mormann wrote in an email to The Texas Tribune. “But, financially, Chevron, ExxonMobil, and other Texas oil-and-gas majors play in the global league… In other words, I strongly doubt that the Comptroller is setting off the next oil-and-gas boom in Texas.”

As political campaigning heats up ahead of the November elections, Hegar this week also accused Harris County of slashing its spending on its constables’ offices, even though those offices would get big boosts to their budgets under a proposed budget. Republicans used Hegar’s accusation as an opportunity to criticize County Judge Lina Hidalgo, the county’s Democratic chief executive who is seen as a rising star in the party, as she faces a reelection battle in November.

Last week, Hegar announced he supports Texas repealing state taxes on menstrual products such as tampons and sanitary pads, a position echoed by Gov. Greg Abbott.

Disclosure: Exxon Mobil Corporation, Southern Methodist University, Texas A&M University, Texas A&M University School of Law and the University of Houston have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

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