BlackRock and Credit Suisse are set to appeal their inclusion in a list of financial companies that Texan public investment funds will be directed to divest.
On Wednesday, Texas Comptroller Glenn Hegar published a list of 10 names deemed to meet the state’s definition of a company boycotting fossil fuels. BlackRock is the only US firm; the other nine are European.
A second list named around 350 individual funds that Texas state investment funds would be prevented from investing in.
A spokesperson for Credit Suisse told Responsible Investor that it was not boycotting energy companies as it had ongoing partnerships and strong client relationships in the sector, and that it had made this clear in its response to the Comptroller’s enquiries. They added that the Swiss bank “[looked] forward to engaging with the Texas Comptroller to resolve this matter”.
RI understands that BlackRock will also be engaging with both the state and its retirement systems to find ways to avoid it and its funds being added to the final list.
“We disagree with the Comptroller’s opinion,” a spokesperson for the firm said. “This is not a fact-based judgment. 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. Politicising state pension funds, restricting access to investments, and impacting the financial returns of retirees is not consistent with that duty.”
BNP Paribas, Danske Bank, Jupiter Fund Management, Nordea, Schroders, SEB, Swedbank and UBS form the remainder of the list. All 10 firms were in the first wave of 19 letters sent out by the Comptroller, who later sent enquiries to a further 100 firms. The first 19 were selected on the basis of a higher-than-average MSCI ESG rating and membership of the Climate Action 100+ and GFANZ initiatives.
A spokesperson for Schroders said the UK asset manager “strongly disagreed” with the decision and that it had $19 billion invested in energy companies globally. “We are committed to maximising returns for clients by actively engaging with the companies in which we invest, including helping them to navigate and adapt to the opportunities and risks their businesses face in the energy transition,” the spokesperson added.
UBS also expressed its disappointment with the announcement. “We firmly disagree with the Comptroller’s decision to include UBS in this list,” a spokesperson said. “We provided their office with extensive information on our policies and practices, demonstrating that UBS does not boycott energy companies even under a broad interpretation of Texas law.”
A spokesperson for Swedbank explained its fossil fuel financing restrictions and said the bank was “determined to facilitate a climate transition that aligns with the Paris Agreement. This includes contributing to meeting the UN Sustainable Development Goals (SDGs).”
Danske Bank, BNP Paribas and Jupiter declined to comment, the other firms on the list had not responded to a request for comment at the time of publication.
Companies on the list have a period of 90 days to “cease boycotting energy companies” in order to avoid divestment. The state’s investment firms must have sold half of their holdings in the named companies after 180 days, and the whole investment after 360, unless to do so would cause them a loss in value or to deviate from their benchmarks.
The Texas Teachers Retirement System – the state’s largest investment fund, with around $160 billion in assets – owned 64,779 shares in BlackRock on 31 July worth around $45 million today, according to a list of holdings on its website. It has stakes in all the other firms except Jupiter, with a total investment of around $250 million including BlackRock.
Invesco and Fidelity Investments were among the institutions whose funds were also deemed to be boycotting fossil fuel companies.
Both are currently Silver Sponsors of the State Financial Officers Foundation (SFOF), which has been accused of active involvement in the anti-ESG movement sweeping across the US and boasts the Comptroller as one of its members.
Fidelity declined to comment on its fund’s inclusions, and whether it intended to raise this with the SFOF or was reconsidering its sponsorship.
At the time of publication, Invesco had not responded to RI’s request for comment. Funds from abrdn also appear on the list, as do a series of funds from PGIM and BNY Mellon, neither of which responded to a request for comment. abrdn declined to comment.
The Investment Company Institute (ICI), the leading US association for regulated investment funds, lambasted the move, which it said would harm the ability of Texas police, firefighters, teachers and other state civil servants to save for a secure financial future.
“Access to a range of funds helps drive financial innovation as investors can seek to capitalise on market trends and mitigate risk as part of their investment strategies,” the institute said in a statement. “The merits of the named ESG-related funds, which operate in a competitive marketplace, should be evaluated primarily by their ability to meet the long-term goals of Texas state retirees.”
The US association urged Texas policymakers to prioritise families “over partisanship”. It added that state pension fund managers should be able to consider a broad range of investments that most appropriately support the needs of Texas savers “free from politics”.
Earlier this year, an academic study co-authored by one of the US Federal Reserve’s economists claimed that Texas’s anti-ESG measures – alongside a bill regarding the firearms industry – was harming the pricing of the state’s municipal bonds.
The study compared bond offerings of public issuers in Texas previously reliant on banned banks with those that were less dependent on them for underwriting. It found that, following the introduction of the legislation, yields increased by 19.3 basis points for issuers that had at least 10 percent of their previous underwriting business with the targeted banks. That rose to around 23 basis points and 39bps for issuers reliant on the banned banks for more than 20 percent and 50 percent of their underwriting, respectively.
At the time of publication, the Comptroller’s office had not responded to a request for comment regarding ICI’s response and the study.
The announcement by the Texas Comptroller comes as Florida’s governor, Ron DeSantis, along with fellow Trustees of the State Board of Administration, passed a resolution directing the state’s fund managers to “invest state funds in a manner that prioritises the highest return on investment for Florida’s taxpayers and retirees without considering the ideological agenda of the environmental, social and corporate governance (ESG) movement”.
DeSantis first announced the legislation last month. At the same time, he also unveiled proposed legislation for the 2023 Legislative Session that would amend Florida’s Deceptive and Unfair Trade Practices statute to “prohibit discriminatory practices by large financial institutions based on ESG social credit score metrics”.