EnergyStatewide NewsTexas Preparing ESG Retaliation as Obstacles Mount for Fossil Fuels Financing

When the final list is released, the state will begin the process of removing its pension dollars from those offending companies.
August 4, 2022
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Comptroller Glenn Hegar will soon release the state’s list of financial companies “boycotting” fossil fuels in conjunction with 2021’s Senate Bill (SB) 13, which tasks Hegar with removing state pension dollars from those entities.

“Texas won’t sit idly by while Washington and Wall Street peddle a fairy tale that has real negative consequences for the Texas economy, our energy independence, and our national security,” Hegar tweeted on Wednesday. The comptroller’s office is expected to release its list in the next month or two.

That prospective list was narrowed down to 19 financial firms with alleged explicit policies to divert money away from fossil fuel companies — nine of which had not responded to the inquiry by the 60-day deadline in late May. There are over 150 more being evaluated by the comptroller for providing the option of divestment funds, which are not necessarily company-wide policies.

Earlier this year, Hegar sent each of these firms a letter asking for clarification about the companies’ practices and priorities when providing financial direction. To make the list, the state must have public dollars invested either directly in the company or through their investment — a prerequisite for action through SB 13.

Chief among those companies is BlackRock, the world’s largest portfolio manager, in or through which Texas pensions have billions of dollars invested. Earlier this year, Lt. Governor Dan Patrick asked Hegar to add BlackRock “to the top of the list” of companies divesting from fossil fuel businesses — a charge BlackRock President Rob Kapito categorically denied at a Texas oil and gas conference in March.

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Hegar isn’t the only state financial officer tasked with “divesting the divestors.” West Virginia Treasurer Riley Moore released his list of offenders — now ineligible from receiving banking contracts with the State of West Virginia — which includes BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

Three of those companies appeared on Texas’ list of 19.

The SB 13 legislation became a harbinger of the groundswell of attention paid to the Environmental, Social, and Governance (ESG) movement sweeping through corporate America. While the nationwide attention it’s received this year is new, ESG itself is not.

It denotes the push by progressives for corporations to adopt internal policies advancing their goals on environmentalism, left-wing social values like abortion access, and setting intra-company diversity standards.

The Texan obtained a list of testimonials from owners of Texas oil and gas businesses provided to lawmakers during the discussion over SB 13.

“My partners and I have experienced firsthand the whims of politically motivated and discriminatory investing,” said James Lofton of Odessa-based Jan Resources, describing the impact an ESG push had on his company. “A financial institution has turned a cold shoulder to us more than once in the last five years.”

“Even though we had strong financial statements, had never missed a payment, and had not overextended our credit, Chase Bank decided to cut us off at the knees because suddenly, oil and gas was ‘no longer a market they were interested in,’ as our banker told us.”

The company’s $500,000 line of credit was canceled and not renewed. As with many industries, oil and gas operators depend on lines of credit to finance the up-front costs of jumpstarting operations.

Financial institutions face their own political pressure. On one side are environmental groups staging protests aimed at forcing the financier’s hand to withhold capital from fossil fuels. On the other are red states like Texas objecting to any acquiescence of the political left’s demands.

Multiple times this year, progressive activists have staged protests at Chase Bank in an attempt to pressure the company to cancel its financing of oil and gas businesses.

Lofton said that his company found refuge in two regional Texas banks that granted his company the funding it needed.

Shad Frazier of Midland-based Endeavor Resources said that three banks backed out of financing his employer after “virtue signaling pressure campaigns from firms like BlackRock changed capital availability.”

Less financing for oil and gas means less drilling — which is precisely the goal of those spearheading the ESG movement.

And these decisions by financiers are often made in haste.

Bud Brigham of Midland-based Brigham Minerals said that during the 2020 plunge of oil prices, at one point into negative levels, his private equity sponsor Warburg Pincus decided to sell its shares at less than half of their value. “[I]t was very apparent [that decision] was due to Warburg Pincus’ stated intent to divest from fossil fuels and to invest in ‘renewables,’” Brigham said.

Mike Howard of San Antonio-based Howard Energy Partners and Karl Pfluger of Midland-based Oryx Midstream both had financiers pull out of their companies for the same reasons of shuffling their investments from fossil fuels to wind and solar development.

Part of the broader ESG trend is how pension funds are voting in corporate shareholder meetings. A few months ago, the Texas Employee Retirement System (ERS) voted by proxy in favor of net-zero corporate policies at five different companies’ shareholder meetings — each of which was put forward by environmental groups or companies that held their own chunk of stock in the companies.

A month later, the Teachers Retirement System (TRS) voted by proxy in favor of a proposal in front of Lowe’s shareholders directing the company to find ways to protect abortion access for its employees.

In each of those instances, those proposals failed but the fact that a Texas pension system voted for them caused a stir among GOP officials.

ERS said the issue was with their proxy advisor, a firm hired by the pension to evaluate proposals at all of the companies in which it has funds and recommend how to vote on each.

State Republicans will continue to focus on this issue. The lieutenant governor remains particularly bullish against ESG. “Our pension funds have no business supporting ‘woke’ policies at the request of liberal financial firms that are contrary to the best interests of Texas,” Patrick wrote in a campaign email in reference to the TRS and ERS’s proxy votes.

State Rep. Steve Toth (R-The Woodlands) stated in May that he’ll file legislation next year that would prohibit banks operating in Texas from refusing to issue loans to fossil fuel companies.

Money is at the confluence of various political issues enveloping Texas right now, and at its center is the state’s vaunted oil and gas industry.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.