Texas’s 2021 Anti-ESG Law (Senate Bill 13)
- Purpose: The law, known as Senate Bill 13 (SB 13), was enacted to prevent Texas state entities, including pension funds and other state agencies, from investing in companies that "boycott" energy companies. The law reflects Texas's stance that the financial industry’s growing commitment to ESG principles, particularly those targeting fossil fuels, is detrimental to the state's economy, which is heavily reliant on the oil and gas sector.
- Key Provisions:
- Prohibition on Investments: The law prohibits Texas state agencies, including public pension funds, from investing in financial companies that have policies limiting business with or "boycotting" the oil and gas industry.
- Divestment Requirements: Texas state entities must divest from financial companies that are identified as "boycotting" energy companies unless those companies cease their discriminatory practices within a specified period.
- Definition of "Boycott": The law defines "boycotting" broadly to include any company that refuses to deal with, terminates business activities with, or takes other actions to penalize or inflict economic harm on a company because it engages in, facilitates, or supports fossil fuel-based energy production.
2022 Blacklist
- Creation of the Blacklist: In 2022, following the enactment of SB 13, the Texas Comptroller’s office released a list, often referred to as the "blacklist," of financial firms and investment funds that are prohibited from entering into contracts with the state or any state agencies because they are considered to be boycotting the oil and gas industry.
- Companies on the List: The blacklist includes several high-profile financial institutions and asset managers that have publicly committed to reducing their investments in fossil fuels or have adopted policies aligned with ESG principles. The list includes names like BlackRock, UBS, Credit Suisse, BNP Paribas, and others.
- Impact on Public Funds: The Texas law and the subsequent blacklist require state pension funds and other public investment entities to divest from the companies on the list. This impacts significant pools of state-managed capital, particularly those managed by large pension funds such as the Teacher Retirement System of Texas (TRS) and the Employees Retirement System of Texas (ERS).
Implications and Reactions
- Economic Impact: The law and blacklist have sparked debates about their potential impact on investment returns for Texas state funds. Critics argue that restricting investment choices could limit diversification and lead to lower returns. Supporters, however, argue that the law protects Texas’s economic interests and its crucial oil and gas industry.
- Legal and Financial Repercussions: The move has led to tensions between Texas and financial institutions. Some firms have had to reconsider their ESG strategies to maintain business relations with the state. There are also concerns about potential legal challenges related to the interpretation and enforcement of the anti-ESG law.
- Wider Political Context: The Texas anti-ESG law is part of a broader pushback by several U.S. states, particularly those with significant fossil fuel industries, against what they see as an overreach of ESG-focused investment strategies that could harm their economies. Other states, such as West Virginia and Oklahoma, have enacted similar laws or taken comparable steps.
Conclusion
Texas's 2021 anti-ESG law and 2022 blacklist represent a significant policy stance against the growing trend of ESG investing, particularly investments that exclude or penalize fossil fuel companies. This legislative action underscores the ongoing conflict between economic interests in states reliant on fossil fuels and the global financial industry’s shift towards sustainability and ESG principles.
