Texas bans 10 major banks and 348 investment funds for allegedly boycotting fossil fuel-based energy companies critical to the state’s economy, a move critics say could cost Lone Star State taxpayers hundreds of millions a year in higher interest charges.
The state blacklist released Aug. 24 follows West Virginia’s decision in July to ban five banks for the same reason. Such actions come as some Republican-led states crack down on corporate social and environmental policies that states perceive to be politically motivated.
The banks that Texas warned earlier this year went to great lengths to show that they were in fact investing tens of millions in the fossil fuel industry, but some failed to convince the state. Texas and West Virginia have now banned BlackRock Inc., the world’s largest asset manager, from doing business with the state.
The Texas exclusion list of so-called Schedule I companies also includes BNP Paribas SA, Credit Suisse AG, Danske Bank A/S, Jupiter Fund Management PLC, Nordea Bank Abp, Schroders PLC, Svenska Handelsbanken AB (publ), Swedbank AB (publ ) and UBS Group AG. The 348 investment funds belong to banks in the United States and Europe.
Major pension funds such as the Teacher Retirement System of Texas will now be required to divest companies and funds on the list, as will a multi-billion dollar fund for public schools.
“A vibrant oil and gas industry in Texas is a stabilizing force in today’s economic and geopolitical environment,” Texas Comptroller Glenn Hegar said in a statement. “My greatest concern is the false narrative that has been created by environmental crusaders in Washington, D.C. and Wall Street that our economy can completely move away from fossil fuels, when in fact they will be part of our daily lives for the foreseeable future.”
The Texas crackdown followed Florida’s August 23 decision to ban the state’s $186 billion pension fund from considering environmental, social or governance factors in investment decisions. Other Republican-led states are expected to follow suit.
Borrowing costs have skyrocketed
Steve Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, said these state efforts are escalating in part because of the wave of investors demanding change. For example, in 2021, ahead of the United Nations Climate Change Conference in Glasgow, Scotland, investors managing $52 trillion in assets urged countries to phase out coal, and many institutional investors committed to gradually reducing their carbon footprint.
“The market is talking, and there are states that want to put their thumbs in the market,” Rothstein said in an interview. “Texas taxpayers, unfortunately, will be burdened with hundreds of billions of dollars based on this ruling.”
A July study by the Wharton School at the University of Pennsylvania estimated that municipalities and other public entities in Texas paid between $303 million and $532 million in additional interest on the $32 billion they borrowed from the during the first eight months after Texas’ anti-ESG laws enacted in 2021 took effect and some major banks had to stop underwriting bonds.
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