It’s time to learn from Texas, and end the madness of ESG pseudo-capitalism for good

The reason for this move is two-fold.

Firstly, the PSF derives the vast preponderance of its funds – more than $1 billion annually – from oil and gas revenues related to lands and mineral rights bequeathed to it by the State of Texas in the West Texas Permian Basin.

Secondly, the 2021 session of the Texas Legislature passed a law, signed by Governor Greg Abbott, ordering the Texas Comptroller’s office to identify any ESG investment companies which, like BlackRock, have a record of discriminating against funding oil and gas projects. Any Texas-run fund then has a legal obligation to terminate any and all investments with such firms.

The move against BlackRock related to the PSF is just the first of what could become a series of divestments of ESG money from it and other Texas funds like the Permanent University Fund (PUF) which provides billions in revenues to both The University of Texas and Texas A&M systems, and various other investment funds managed by the state.

In announcing the move, Texas State Board of Education Chairman Aaron Kinsey told Fox Business that it was taken as part of his fiduciary duty to protect the fund’s main source of revenues.

“The Texas Permanent School Fund has a fiduciary duty to protect Texas schools by safeguarding and growing the approximately $1 billion in annual oil and gas royalties managed by the Texas General Land Office,” Kinsey said. “Terminating BlackRock’s contract ensures PSF’s full compliance with Texas law.”

“BlackRock’s dominant and persistent leadership in the ESG movement immeasurably damages our state’s oil and gas economy and the very companies that generate revenues for our PSF. Texas and the PSF have worked hard to grow this fund to build Texas’ schools,” he continued. “BlackRock’s destructive approach toward the energy companies that this state and our world depend on is incompatible with our fiduciary duty to Texans.”

A spokesperson for BlackRock slammed the move, calling it “arbitrary,” adding, “The decision ignores our $120 billion investment in Texas public energy companies and defies expert advice. As a fiduciary, politics should never outweigh performance, especially for taxpayers.”

But the move was hardly arbitrary and was taken only after almost three years of deliberation since the law was enacted in mid-2021. BlackRock officials were placed on notice by state officials, including Texas Comptroller Glen Hegar, of the possible loss of the investment at several junctures along the way. 

Rather than modify its business strategies undermining the Texas industry and state government, state officials believe BlackRock provided only lip service while apparently continuing the same practices.

The firm’s conflict on the matter was illustrated by Mr. Fink himself last June when, speaking at the Aspen Ideas Festival, he said, “I’m ashamed of being part of this conversation,” when questioned about his firm’s ESG investing strategies. Bare moments later, he took it all back, telling the moderator, “I never said I was ashamed,” he said, even though he had just actually said that very thing. “I’m not ashamed. I do believe in conscientious capitalism.” 

He then went on to discuss how he planned to stop communicating about ESG in those direct terms in his communications. Many in the media interpreted that at the time to mean that BlackRock planned to invoke a shift in strategies related to its investment practices. But if any such shift has been implemented it was not apparent to Mr. Kinsey.

Texas officials have little choice but to move to protect the PSF and other state-managed funds from firms that seek to damage the state’s most vital industry. While Mr. Fink believes that making decisions based on political views is the right way to manage his firm, these officials have an unambiguous fiduciary duty to make them based on maximizing revenues. For the PSF and PUF, those revenues directly derive from drilling for oil and natural gas beneath millions of acres in the resource-rich Permian Basin. 

That’s how Texas works, and the record proves the system has worked extremely well.

David Blackmon had a 40 year career in the US energy industry, the last 23 years of which were spent in the public policy arena, managing regulatory and legislative issues for various companies. He continues to write and podcast on energy matters