Economy and Society March 26, 2024: Texas education fund pulls $8.5 billion from BlackRockEconomy and Society March 26, 2024: ESG developments this week

ESG developments this week

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

In Washington, D.C.

House Judiciary Committee subpoenas As You Sow

The House Judiciary Committee last week issued a subpoena for testimony from Andrew Behar, the head of the pro-ESG group As You Sow, as part of its ongoing investigation into potential ESG antitrust violations:

A U.S. House of Representatives panel has subpoenaed the head of an activist group that pressures companies over environmental, social and corporate governance issues to appear for a March 28 deposition, according to a letter seen by Reuters on Thursday.

The Republican-led House Judiciary Committee is conducting a probe into whether ESG efforts violate antitrust laws. It has subpoenaed BlackRock Inc and State Street Corp for documents and communications as part of the same investigation.

The committee said it was issuing the subpoena to compel the deposition of Andrew Behar, the chief executive officer of As You Sow, as part of its probe into antitrust laws. A spokesman for the group said it had provided documents and testimony since receiving the panel’s initial request and that Behar had already agreed to a voluntary interview to be held on March 28.

Suits against SEC consolidated and assigned to Eighth Circuit

Nine lawsuits against the Securities and Exchange Commission’s final rule on climate disclosures for publicly traded companies were consolidated last week and assigned to the U.S. Court of Appeals for the Eighth Circuit through a lottery process. Sixteen of the court’s 17 justices were appointed under Republican presidents:

Litigation over whether the SEC can require public companies to disclose their greenhouse gas emissions and other climate-related information to investors will be consolidated and reviewed by the conservative-leaning Eighth Circuit, as the result of a lottery drawing Thursday.

The Judicial Panel on Multidistrict Litigation lottery selected the US Court of Appeals for the Eighth Circuit as the venue for hearing a case consolidating nine lawsuits against the March 6 Securities and Exchange Commission regulations filed in six different circuits, according to an order. Of the St. Louis-based court’s 17 judges, only one was appointed by a Democratic president.

Twenty-five states joined energy companies and business advocates in arguing the regulation exceeds the SEC’s authority. The Republican attorneys general and business interests filed petitions to review the rules in the US courts of appeal for the Fifth, Sixth, Eighth and Eleventh circuits, which have a conservative bent. Iowa led the lawsuit in the Eighth Circuit.

In the states

Texas education fund pulls $8.5 billion from BlackRock

The Texas Permanent School Fund (PSF) last week pulled roughly $8.5 billion from BlackRock’s asset management. Texas State Board of Education Chairman Aaron Kinsey (R) argued that BlackRock supports ESG and is ineligible to manage public funds under a state law prohibiting public contracts with companies that illegally boycott the fossil fuel industry:

“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 in a statement Tuesday. “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 & 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.” …

“Today represents a major step forward for the Texas PSF and our state as a whole. The PSF will not stand idle as our financial future is attacked by Wall Street,” Kinsey said Tuesday. “This bold action helps ensure our PSF remains in fact permanent and will continue to support bright futures and opportunities for generations of Texas students.”

BlackRock responded with a thread on Twitter/X and a letter to Chairman Kinsey and the TPSF, arguing the move was not in the best interest of the school fund:

We were dismayed by your announcement to terminate BlackRock’s management of approximately $8.5 billion of Texas Permanent School Fund assets. Your actions put short-term politics over your long-term fiduciary responsibilities. We urge you to reconsider your decision and prioritize Texas schools and families who have benefited from BlackRock’s consistent, long-term investment outperformance.

In announcing your decision, you said, “The Texas Permanent School Fund (PSF) has a fiduciary duty to protect Texas schools.” BlackRock has been a trusted partner to Texas PSF in fulfilling this duty for nearly two decades – delivering consistently strong performance for Texas PSF over that time. …

We fully comply with Texas law and fundamentally disagree with your assessment based on BlackRock’s performance for Texas PSF and our investments in Texas energy companies. Additionally, Senate Bill 13 makes clear divestment is not required when a government entity determines divestment is inconsistent with its fiduciary responsibilities. The outperformance BlackRock has demonstrated shows divestment would not be in the best interest of Texas PSF.

BlackRock has lost more than $13 billion from state divestments

This latest move by the Texas Permanent Schools Find brings the total of Republican state funds withdrawn from BlackRock’s management to more than $13 billion, prompting the firm to  respond to ESG opponents:

Nearly two years into a Republican campaign to punish BlackRock for insisting that climate change carries financial risk, red state investment funds have pulled about $13.3bn from the world’s largest asset manager. …

BlackRock has been trying to respond to the campaign against environmental, social and governance factors in different ways. In Washington it added a senior lobbyist with Republican ties. Last month, the company co-hosted a power grid investment summit in Houston with Dan Patrick, Texas’s lieutenant-governor. Patrick has previously expressed “grave concerns” about the group’s use of ESG factors in investing. …

The outflows started in 2022 after West Virginia state treasurer Riley Moore included BlackRock on the nation’s first list of financial firms deemed to boycott fossil fuel companies. Texas, Florida, Missouri and other GOP-led states followed suit with anti-ESG initiatives and divestments.

In the spotlight

Think tanks argue unions use ESG to divide employees and employers

F. Vincent Vernuccio—the president of the Institute for the American Worker—and Sam Adolphsen—the policy director for the Foundation for Government Accountability—argued in an op-ed for The New York Post that unions use ESG pressure to create tension between employers and employees, even where no such tension existed before:

A new Institute for the American Worker report shines a light on labor unions’ reliance on ESG. No one is more explicit about it than unions themselves.

The Teamsters recently stated the “S” in ESG is “a critically important tool for advancing worker interests in the 21st century.” Similarly, the AFL-CIO has said ESG investing “advance[s] the causes of working people.” Outside unions themselves, meanwhile, labor allies have rallied to the ESG banner, with New York City Comptroller Brad Lander calling a recent union campaign against Apple “ESG done right.” …

Research shows unionized companies can forfeit 5% to 10% of shareholder value, largely because they lose flexibility.