Truce Over: Texas School Fund to Ax $8.5B in BlackRock Investments

This story has been updated.

The Texas Permanent School Fund will divest $8.5 billion from BlackRock Inc. over what that State Board of Education’s chairman termed the asset manager’s ESG-oriented commitment to harm the state’s large oil and gas industry. That marks a reversal of a seeming detente between Texas and BlackRock.

“BlackRock’s destructive approach toward the energy companies that this state and our world depend on is incompatible with our fiduciary duty to Texans,” said Texas State Board of Education Chairman Aaron Kinsey in a statement Tuesday. The Texas PSF (assets: $52 billion), a perpetual fund which helps fund the state’s public schools and which includes royalties from energy businesses, is “damaged” by the movement to consider environmental, social and governance factors in investing decisions, he contended.

Kinsey, a Republican like the rest of the official Texas leadership, is also secretary of the PSF board and chairman of its strategic planning committee. He declared that the “PSF will not stand idle as our financial future is attacked by Wall Street. This bold action helps ensure our PSF remains in fact permanent.”

Another PSF board member, Republican Pat Hardy, of Fort Worth, told the San Antonio Express News Tuesday that she was unaware of any decision to divest from BlackRock.

Attempts were unsuccessful to reach Kinsey, the State Board of Education, the PSF or BlackRock, to determine what assets are involved and any other details of the divestment. The assets involved likely include investment limited partnerships. The timetable for any divestment is unclear. The PSF does not disclose specific holdings outside of individual stocks and bonds, and none of those securities had links to BlackRock.

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The divestment announcement comes despite what seemed like a recent thawing between the Lone Star State’s Republican leadership and BlackRock. The firm’s CEO, Larry Fink, a longtime supporter of ESG precepts, last year stopped using the term ESG, saying it had become too politicized.

He also struck up a chummy relationship with Texas Lieutenant Governor Dan Patrick after Fink announced BlackRock would help raise $10 billion in private investment to bolster the state’s troubled power grid.

Still, BlackRock, which has $10 trillion under management, is on a list the state comptroller compiled of financial firms that he finds boycott fossil fuel companies. The list is in keeping with a 2021 state law that restricts investments in companies that boycott oil and gas. The asset giant has disputed its anti-fossil fuels characterization, saying it maintains investments in traditional energy companies, including ExxonMobil Corp. and Occidental Petroleum Corp.

To be sure, BlackRock has been a long-time ESG proponent, sponsoring several clean energy funds and, in 2021, whittling its exposure to U.S. oil and gas stocks by about 15% to $552 billion, according to Standard & Poor’s. BlackRock also has several mutual and exchanged-traded funds that specialize in clean energy and other sustainability-themed strategies.

“BlackRock is helping millions of Texans invest and save for retirement,” the financial firm said in a statement. “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.”

In another statement, PSF stated that the BlackRock decision comes after a strategic reallocation in February that “eliminated the increasingly volatile emerging market debt and equities and reduces exposure to non-U.S. equity areas in which BlackRock was providing investment management services.”