The economic planet | Texas at war with “woke” investors

As the world’s major financial institutions rally around common climate change goals, the difference between official rhetoric and real life is starting to become clear.

Helene Baril
The Press

We are currently seeing this in Texas, which has just banned BlackRock, the largest institutional investor on the planet, from its lands because it has pledged to reduce the weight of fossil fuels in its portfolio.

BlackRock and nine other financial institutions, including Credit Suisse and UBS, are now blacklisted and can no longer do business with the state of Texas.

The state comptroller asked financial institutions and investment funds suspected of boycotting oil for proof that this was not the case, if they wanted to continue doing business on its territory.

Texas considers that the ESG (environmental, social and governance) criteria and the declared desire of several large investors to eliminate fossil fuels from their portfolios amount to a boycott of oil and an affront to its economy.

“The ESG movement has led to an opaque and perverse system in which financial companies no longer make decisions in the interest of their shareholders, but rather use their power to promote a social and political agenda”, denounced the comptroller of the state, Glenn Hegar, who calls them “wokes”.

The institutions targeted by Texas are signatories to the Glasgow Financial Alliance for Net Zero, under the aegis of the UN and chaired by Mark Carney, the former governor of the Bank of Canada and the Bank of England. Some 160 companies that manage total assets of US$70 trillion have pledged to phase out their support for the fossil fuel sector with the aim of reaching net zero for their portfolio by 2050.

Texas, which produces 43% of all American oil and 25% of natural gas, has decided to react to what it considers to be an attack on its economy. It has adopted a law to prohibit financial institutions that boycott oil from participating in its bond market and the management of its employees’ pension funds.

Texas considers a boycott any action to limit a bank’s business relationship with an oil or gas company because the latter fails to exceed minimum environmental requirements.

In response to questions from the state comptroller, most of the targeted financial institutions worked hard to pass the test and be able to continue doing business in Texas.

“Alleged commitments denounced”

This is the case of the Royal Bank, whose climate commitments were deemed sufficiently insignificant to please the state.

Canada’s largest bank, which has pledged to make its lending portfolio carbon neutral by 2050, assured Texas that it is not anti-oil at all. Quite the opposite, according to what she replied to the state comptroller, insisting that she has loans worth $25 billion in the oil and gas sector. It is possible, argued the Royal, to finance companies in the fossil fuel sector and at the same time fight against climate change.

However, the virtuous commitments made by financial institutions are slow to be followed by concrete actions. This is what Greenpeace criticizes the Royal Bank and other Canadian banks, in a report published last week.¹.

The report denounces the “alleged commitments” of Canadian banks and argues that they should be excluded by the United Nations from the international net zero alliance if they do not do more to advance the fight against climate change.

In its official reply, BlackRock deplored the politicization of the debate by the State of Texas and the imposition of barriers to access its market, which goes against the interests of the population, it argued.

BlackRock big boss Larry Fink has championed the fight against climate change from all sides. The financial giant is still the second largest shareholder of ExxonMobil, with a stake of 6% of its share capital and which manages 20 billion in public funds in Texas.

In addition to Texas, the state of West Virginia, a major coal producer, has also banned two American banks, Wells Fargo and JP Morgan Chase, from its public markets because of their climate commitments.

The Texas blacklist contains 10 companies, most of them European, and 354 investment funds. This war has only just begun. The taxpayers of the States concerned will suffer from the reduction of competition which will result from the banishment of certain players from the market. On the other hand, banks will find it increasingly difficult to speak out of both sides of their mouths at the same time.