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BlackRock, UBS and 349 ESG funds “banned” in Texas

Wall Street giants have a Texas-sized problem: making good on flashy vows to make clients’ investments greener while limiting political and financial blowback from red states.

Catch up fast: On Wednesday, Texas Republican Comptroller Glenn Hegar released a list of 10 companies and 349 investment funds that will be barred from doing business with the state because they “boycott energy companies.”

  • The list follows enactment of a law last year prohibiting most state agencies and local governments from contracting with such firms.
  • BlackRock, Credit Suisse and UBS made the banned list, along with sustainable investment funds from other banks.

Why it matters: At stake are trillions in investments — including by state pension funds as well as individuals’ retirement savings — and the future of the fossil fuel industry that is fueling global warming.

The intrigue: Consumers and regulatory agencies are pushing investment firms like BlackRock to take climate-related risks into account when making money management decisions.

What they’re saying: “The environmental, social and corporate governance (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,” Hegar said in a statement.

Yes, but: The 10 companies banned from doing business with the Texas government do have considerable fossil fuel investments. BlackRock wrote a letter to Hegar in May stating it actively invests in the energy industry.

  • The firm is a large shareholder in ConocoPhilips and Exxon Mobil, Bloomberg reported.
  • “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,” BlackRock spokesman Brian Beades told Axios on Wednesday.
  • UBS also criticized Texas’ action. “We provided their office with extensive information on our policies and practices, demonstrating that UBS does not boycott energy companies even under a broad interpretation of Texas law,” spokesperson Erica Chase told Axios Austin’s Asher Price.

Between the lines: Though it would apply to large funds such as the Teacher Retirement System, the banned list is unlikely to have much of an impact on Wall Street, according to Daniel Firger, managing director of Great Circle Capital Advisors, a climate finance consultancy.

  • The holdings of Texas’ funds covered under the ban are far lower than those from states like California and New York, which have moved aggressively to limit their fossil fuel exposure, Firger told Axios.

Context: The Texas action is not an isolated development. Late last month, West Virginia barred five major financial firms, including BlackRock and JPMorgan Chase, from new state business after concluding they were boycotting the fossil fuel industry.

  • Other Republican-led, energy producing states may follow suit, creating stronger headwinds for sustainable investing.

The bottom line: “Long term, climate change is not going anywhere. And so the capital markets are going to have to deal with that fact, and at root, I think that’s what this ESG fight is all about,” Firger said.

Go deeper: Conservatives’ war on BlackRock

Asher Price contributed reporting.