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Texas school fund pulls $8.5B in BlackRock contracts over ESG concerns

The State of Texas’ Permanent School Fund (PSF) Corporation delivered a letter to BlackRock on Tuesday terminating its relationship with the world’s largest asset manager that had overseen $8.5 billion in assets for the fund.

The move comes as the state Legislature and corresponding entities have prioritized a rebuke of the Environmental, Social, and Governance (ESG) movement in the world of capital — a force for which BlackRock has become the face due to its financial prowess and statements from CEO Larry Fink.

“Today, PSF leadership delivered an official notice to global asset manager BlackRock terminating its financial management of approximately $8.5 billion in Texas' assets,” State Board of Education Chairman Aaron Kinsey said in a statement announcing the news. “Terminating BlackRock's contract ensures PSF's full compliance with Texas law.”

First featured in FOX Business, the move follows state pensions pulling their investments from BlackRock and other financial institutions since the implementation of Senate Bill (SB) 13.

“The PSF's relationship with BlackRock was not in compliance with Texas Government Code Section 809, commonly referred to as Senate Bill 13, which prohibits state investment in companies like BlackRock that boycott energy companies,” he added.

“BlackRock's dominant and persistent leadership in the ESG movement immeasurably damages our state's oil & 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. BlackRock's destructive approach toward the energy companies that this state and our world depend on is incompatible with our fiduciary duty to Texans.”

The PSF is a fund created by the Legislature in 1845 to buttress the finances of Texas' public schools. It manages investments like a pension fund, the beneficiary of which is not retirees but schools.

In 2021, the Texas Legislature passed Senate Bill (SB) 13, which laid out a prohibition against state dollars going to companies deemed to be “boycotting fossil fuels.” After a year-long evaluation period, Texas Comptroller of Public Accounts Glenn Hegar finalized a list of companies from which state pension funds should be divested.

Rob Kapito, BlackRock’s president, countered this potential designation in 2022, saying that the company had $93 billion in holdings tied up in Texas’ oil and gas industry.

A BlackRock spokesman told The Texan, “BlackRock is helping millions of Texans invest and save for retirement.”

“On behalf of our clients, we’ve invested more than $300 billion in Texas-based companies, infrastructure and municipalities, including $125 billion invested in the energy sector, including $550 million in a joint venture with Occidental. We recently hosted an energy summit in Houston designed to explore how to strengthen Texas’ power grid.”

The asset manager has had a tenuous and varied relationship with the State of Texas. It became the face of the push for SB 13 — Lt. Gov. Dan Patrick even requested that Hegar put BlackRock “at the top of the list” back in 2021 — and was part of a public reaming by the Texas Senate State Affairs Committee’s meeting on ESG in December 2022.

Attorney General Ken Paxton has launched an investigation into BlackRock concerning the ESG issue and statements made by Fink therein. And in October last year, Paxton issued guidance directing state entities to be “more vigilant” in assessing violations of the state’s anti-ESG law.

Now Gov. Greg Abbott is eyeing a BlackRock-aimed law next session restricting the “large-scale buying” of single-family homes by financial institutions. Financial institutions are buying single-family homes to be rented out, but the 44 percent figure cited is pulled from one quarter in 2022 and encompasses closings from all entities, large and small, that are not individual purchasers.

On the flip side, Patrick and Fink hosted a power grid summit last month in Houston — a de facto advertisement for the state’s new power plant loan program. The pair pitched investors, a room that collectively amounted to $2.2 trillion in holdings, on putting forth $10 billion in investment to shore up the Electric Reliability Council of Texas (ERCOT) grid.

At an April 2023 PSF meeting, then-CEO Holland Timmins said that BlackRock had “strong performance” in its investments; a week later Timmins stepped down from his position as fallout from those comments and the PSF’s continued dealings with the asset manager.

Last week, the Texas Association of Business released an analysis stating that Texas’ two 2021 anti-ESG laws — SB 13 and SB 19, which prohibit contracting with firms discriminating against firearms manufacturers — will cost the state $668.7 million in “lost economic activity.”

With this latest decision, Texas Republicans’ efforts at rebuking the ESG movement in the world capital continue, and the momentum alongside other red states continues to snowball.

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