The Texas Legislature has approved a bill that would require state pension funds to divest from financial companies that “boycott energy companies.”
Foremost among these is BlackRock, the world’s biggest investment fund manager, which recently announced plans to sell shares in thermal coal companies, out of concern that these companies are contributing to pollution that is damaging the atmosphere.
Senate Bill 13 passed the House today, May 4, by a vote of 105-40 and passed the Senate on April 15 by a vote of 26-4. If signed into law by the governor, the bill would impact investment decisions by six public investment funds that manage more than a quarter trillion dollars.
The Employees Retirement System, the Permanent School Fund, and the Teacher Retirement of Texas are among the largest public investment funds in the nation.
“We’re not going to take our pension dollars and put those monies in funds that are working against Texas’ economy, and we’re also not going to contract in large contracts with companies who are working against Texas’ economy,” said Rep. Phil King (R-Weatherford), the House sponsor of the bill, in a speech on the floor of the House before today’s vote.
The bill would require Texas’ public funds funds to “sell, redeem, divest, or withdraw all publicly traded securities of (any) financial company” that boycotts energy companies.
The bill defines “boycott energy company” to mean “refusing without an ordinary business purpose to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a company because the company… engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy and does not commit or pledge to meet environmental standards beyond applicable federal and state law.”
An exemption is made for indirect holdings in actively or passively managed investment funds or private equity funds. An exemption could also be made if a public investment fund “determines that the (divestment) requirement would be inconsistent with its fiduciary responsibility…”
That provision would provide some flexibility to pension funds to determine whether and how to exit such investments in a way that didn’t damage their investment portfolios.
Formally, SB 13 doesn’t refer to BlackRock or any other company by name. It instead tasks the state comptroller with determining which companies are “boycotting” energy companies and keeping a list of these firms.
‘Virtue Signaling Pressure Campaigns from BlackRock’
However, Rep. King referred explicitly to BlackRock when he spoke on the House floor earlier today. “TRS (the Teacher Retirement System of Texas) puts a lot of money there,” he said.
King read a witness statement from an engineer in the oil industry who complained that “the virtue signaling pressure campaigns from firms like BlackRock… have changed capital availability. Three banks backed out of my organization’s reserved based lending because of it.”
The lawmaker cited a number precedents for SB 13 — instances in which the legislature has restricted how state funds can invest. “When we invest those funds, when we buy stock in companies, it says a lot about who we are and what we value. That’s why in 2007 we said we’d not invest in any company or fund doing business with Sudan,” King said.
“Then in 12017 we said we’d not even enter into a contract with a company that boycotts Israel. and we passed legislation that we would not invest in companies who fund or do business in Iran. Now a new concern has arisen. Oil and gas is the lifeblood of the Texas economy. It’s one-third of our GDP and it funds 10% of our state budget.”
“Now, members, in the world of capital there’s a movement to deny funds to businesses that will not sign onto an extreme anti-fossil fuel policy. I’m not talking about a green policy or things that make good business sense…”
“This harms our economy and will ultimately deny capital to Texas companies.”
On the other hand, Rep. Gene Wu (D-Houston), spoke out against the bill, saying that SB 13 “would punish companies for their thoughts, for their statements, for their internal policies.” Texas could instead pass a bill to incentivize investment in the energy sector — using a carrot rather than a ‘stick’ approach, he argued.
Wu added, “Our body has a tendency to do things that are very inconsistent. We say we want to support constitutional rights, we say we want to support the people’s right to free speech, we say we want to protect people’s ability to speak their mind and speak it truthfully.”
“But once again we have another bill on the floor that does the opposite.”
BlackRock’s Climate Investing
In a 2020 client letter, BlackRock explained its rationale for divesting from coal companies. “Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts.”
“With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector. As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.”
More recently, BlackRock’s executive committee also announced a goal of “net zero greenhouse gas emissions by 2050 or sooner.”
Consistent with that goal, it said, “we are now explicitly asking that all companies disclose a business plan aligned with the goal of limiting global warming to well below 2ºC.”
“…These disclosures are essential to helping investors assess a company’s ability to transition its business to a low-carbon world and to capture value-creation opportunities created by the climate transition.”
Update, 6/14/2021: Texas Governor Greg Abbott has signed SB 14 into law. It will take effect September 1, 2021.
Read the Bill
Below is a PDF download to the enrolled version of SB 13:
