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The Texas Permanent School Fund (PSF), a financial cornerstone for the state’s public schools, is severing its relationship with investment giant BlackRock in a contentious dispute centered on environmental, social, and governance (ESG) investing. This move has ignited a national conversation about the role of ESG investing in public finances and the potential consequences for long-term financial stability.
The Texas State Board of Education, led by Chairman Aaron Kinsey, announced on Tuesday the withdrawal of $8.5 billion currently managed by BlackRock. In a statement dripping with tension, Kinsey accused BlackRock of “dominant and persistent leadership” in the ESG movement, arguing that these practices “immeasurably damages our state’s oil & gas economy and the very companies that generate revenues” for the PSF.
BlackRock, however, vehemently contested these claims. A spokesperson for the company pointed to BlackRock’s significant investments in Texas energy companies, valued at over $120 billion. The statement further argued that the decision to divest from BlackRock prioritizes politics over financial performance, especially for taxpayers.
“Today’s unilateral and arbitrary decision by Board of Education Chair Aaron Kinsey jeopardizes Texas schools and the families who have benefited from BlackRock’s consistent long-term outperformance for the Texas Permanent School Fund,” the BlackRock spokesperson said. “The decision ignores our $120 billion investment in Texas public energy companies and defies expert advice. As a fiduciary, politics should never outweigh performance, especially for taxpayers.“
This conflict reflects a wider national debate on ESG investing. Texas, along with other Republican-led states, views ESG practices with suspicion, fearing they pose a threat to the fossil fuel industry, a crucial sector for their economies. Critics argue that ESG investing prioritizes social and environmental goals over maximizing returns, potentially jeopardizing the health of public funds like the PSF.
Texas Senator Bryan Hughes, who spearheaded anti-ESG legislation in 2023 and led a hearing grilling BlackRock executives on their ESG practices, echoed this sentiment in a social media post following the announcement.
“BlackRock and Wall Street firms like it have been using Texans’ money to push a left-wing agenda,” Hughes said. “Texas continues to fight back. That is why we’re pulling $8.5B from BlackRock, making it clear to Wall Street firms that they cannot use taxpayer money to hurt Texas jobs and attack our energy dominance.“
However, divestment from BlackRock could come at a cost. Experts warn that such actions might lead to lower returns for the PSF, ultimately harming Texas schools. An assessment by the Texas County & District Retirement System (TCDRS) analyzing a proposed anti-ESG law last year estimated that the legislation could cost the retirement system more than $6 billion over ten years in lost returns.
Adrian Shelley, director of left-leaning nonprofit Public Citizen, criticized the move, arguing that it amounted to a government mandate to support the fossil fuel industry.
“The state is essentially saying private companies must invest in BlackRock to do business with the state,” Shelley said. “It’s injecting strong-arm political tactics into a fund that benefits public schools.“
Kinsey, however, defended the decision with an air of desperation, emphasizing the existential threat a declining oil and gas industry poses to the PSF’s long-term health.
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“That money originates from the oil and gas industry primarily,” Kinsey told Reuters. “If there’s no income, no billion dollars a year from oil and gas, that’s a problem for our fund, obviously an existential long-term risk.“
The Texas-BlackRock clash highlights the complex and often contentious relationship between financial institutions, environmental concerns, and the economic well-being of states. ESG investing has become a flashpoint, forcing states to grapple with the competing priorities of financial returns, environmental sustainability, and the economic interests of powerful industries. As the national debate on ESG investing continues, only time will tell how this dispute will be resolved and what impact it will have on Texas schools, the future of the PSF, and the broader conversation on ESG investing in the United States.