AUSTIN, TX — In August 2022, Texas State Comptroller Glenn Hegar initiated a significant shift in the state’s investment strategy, beginning the divestment of state funds from financial vehicles that exclude the oil and gas industry. This move places a spotlight on Hegar’s “blacklist” of financial organizations deemed incompatible with the state’s economic interests.
The Shift Away from ESG Funds
Hegar is driving the state’s funds away from Environmental, Social, and Governance (ESG) funds, asserting substantial progress in this initiative. "We are observing significant positive changes. ESG funds are facing substantial withdrawals, and their closures are outpacing new openings. Moreover, we now have concrete data demonstrating the underperformance of investments that neglect the fossil fuel sector," Hegar explained in a recent press release.
He emphasizes the notable decrease in proxy votes supporting ESG initiatives and highlights Standard & Poor’s decision to de-emphasize ESG ratings. Despite these achievements, Hegar underscores the need for continued efforts, committing to enhancing transparency and accountability for the people of Texas.
Understanding the State’s Blacklist and its Implications
The state’s current blacklist encompasses 353 funds, including renowned names such as Fidelity, Goldman Sachs, and Vanguard. It is crucial to note that the list targets specific funds neglecting oil and gas, not entire financial companies. In a more drastic measure, the state has completely banned business transactions with 15 financial firms, including Blackrock, Inc., HSBC Holdings PLC, and UBS Group AG.
These actions stem from a Texas law implemented in September 2021, mandating divestment from financial entities that sideline the oil and gas industry. This law encompasses all levels of Texas governance, from state agencies to local school districts.
Balancing Politics and Business Prudence
While the law has political undertones, challenging the ESG movement and perceived “woke” culture, it also presents a practical business argument. Hegar criticizes the ESG movement as an opaque system, accusing some financial firms of prioritizing political agendas over their clients' and shareholders' best interests.
Recent developments indicate that the state’s boycotts may be influencing industry leaders. Blackrock’s CEO, Larry Fink, has notably distanced himself from ESG, expressing regret over the political connotations associated with his previous statements on the matter.
The Ripple Effect Across States and Industries
It is not only Texas divesting from ESG. Florida’s Governor Ron DeSantis divested $2 billion from Blackrock last year. On the national stage, Rep. August Pfluger condemned President Biden for vetoing a bill aimed at regulating ESG investments in 401K plans, underscoring the potential negative implications for American savers and the energy sector.
Industry and Environmental Perspectives
The oil and gas industry feels the brunt of this shift, particularly in regions like the Permian Basin. Industry insiders report a tangible decrease in speculative drilling, attributing this change to the withdrawal of investments from major financial players like Blackrock.
Conversely, environmentalists argue that the state’s actions are misdirected. They contend that the diminishing appeal of oil and gas investments is due to increased risks and declining profitability, not ESG pressures. They emphasize the burgeoning impact of renewable energy sources, framing them as a more viable and sustainable investment alternative.
As Texas navigates this complex financial and political landscape, the state’s divestment strategy and blacklist serve as a testament to its commitment to protecting its vital oil and gas industry, while also raising critical questions about the future of investment strategies and environmental responsibility.
Related Articles and References
Subscribe to the LIVE! Daily
Required
Post a comment to this article here: