Texas publishes fund blacklist for state pensions

The Texas comptroller Wednesday published its first list of fund providers and products that “boycott” fossil fuel companies, with plans to boot them from managing any state pension assets.

Under a state law passed last year, the state government was tasked with rooting out financial services companies or funds that specifically exclude fossil-fuel holdings from their portfolios.

Within 30 days, Texas agencies that include any of the investments or managers in their pensions must notify the comptroller, according to a notice the office published today along with the list.

The 10 financial firms the state named are BlackRock, BNP Paribas, Credit Suisse, Danske Bank, Jupiter Fund Management, Nordea Bank, Schroders, Svenska Handelsbanken, Swedbank and UBS. However, the list of products the state blacklisted is much larger, consisting of nearly 350 open-end U.S. mutual funds and ETFs from numerous other managers. Many of the products are labeled as sustainable, responsible, impact or ESG funds.

“The [ESG] movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” Comptroller Glenn Hegar said in an announcement. “Our review focused on the boycott of energy companies, rather than a review of the entire ESG movement. This research uncovered a systemic lack of transparency that should concern every American regardless of political persuasion, especially the use of doublespeak by some financial institutions as they engage in anti-oil and gas rhetoric publicly yet present a much different story behind closed doors.”

The list is an “initial effort” to identify companies and funds that preclude oil and gas holdings, according to the announcement. The state is planning to update the list quarterly.


It’s not clear whether the bans would affect any state-sponsored defined-contribution plans, such as the Texa$ave 401(k) and 457 program. A spokesperson for the comptroller’s office referred questions about defined-contribution plans to the individual government entities that are affected by the prohibitions. That list includes the Employee Retirement System of Texas, Teacher Retirement System of Texas, Texas Municipal Retirement System, Texas County and District Retirement System, Texas Emergency Services Retirement System and Permanent School Fund.

The state pensions represented more than $357 billion in assets as of fiscal 2021, according to data from the National Association of State Retirement Administrators.

The new state law provides some exceptions, such as “if the state governmental entity determines divesting would be inconsistent with its fiduciary responsibilities with respect to the assets under its management or other duties imposed by law relating to the investment of the entity’s assets,” the Texas comptroller’s office stated.

Further, state agencies don’t need to dump “any indirect holdings in actively or passively managed investment funds or private equity funds.”

BlackRock, which has been perhaps the biggest target in a wide-ranging political pushback by conservatives against ESG factors in investing, said in a statement to ESG Clarity that it does not boycott oil and gas.

“We disagree with the Comptroller’s opinion. This is not a fact-based judgment. BlackRock does not boycott fossil fuels — investing over $100 billion in Texas energy companies on behalf of our clients proves that,” the company stated in an email.

“Elected and appointed public officials have a duty to act in the best interests of the people they serve. Politicizing state pension funds, restricting access to investments and impacting the financial returns of retirees, is not consistent with that duty,” the company continued. “Texans deserve access to the full range of asset managers, and investment opportunities, that can help them meet their retirement goals. We are proud to play our part.”


Texas’s blacklist comes just a day after Florida’s State Board of Administration voted to ban its pensions from considering ESG factors in investment decisions. The pensions affected by that decision represent about $240 billion in assets, according to Bloomberg.

How the restrictions will ultimately affect the assets managed for retirement savers is a big question.

However, a recent study published by the Wharton School found that Texas’ law, which also affects new contracts that state enters into with financial services providers, has had a negative effect on its muni bond market. The law prompted the withdrawal of the biggest banks in that market, which quickly led to less competition. That has caused underpricing among issuers, leading Texas state entities to pay as much as an estimated $532 million in additional interest on $32 billion borrowed in the eight months since the law went into effect.

Using ESG criteria in making investment decisions has long been a part of the overall analysis asset managers employ in pursuing higher risk-adjusted long-term returns. Many funds had added ESG-specific language to their prospectuses in recent years, even if those products hardly fit the description of sustainable or responsible investments.


Industry and lobbying group the Investment Company Institute was quick to issue a response to the Texas blacklist of companies and funds, calling it “a step toward having Texas state agencies boycott hundreds of investment funds [that] will only harm the ability of Texas police, firefighters, teachers and other state civil servants to save for a secure financial future.”

ICI said it urged the state to avoid making political decisions about investments, noting that the pension managers have a fiduciary duty to employees.

“A state-mandated boycott of certain funds could restrict their ability to choose from the full range of available investments on behalf of Texas state retirees,” the group stated. “The merits of the named ESG-related funds, which operate in a competitive marketplace, should be evaluated primarily by their ability to meet the long-term goals of Texas state retirees.”

This story was originally published on ESG Clarity.