BlackRock pushed back against a decision by the Texas State Board of Education to pull an $8.5 billion investment from the asset manager over its alleged “boycotting” of energy companies and its ESG investing practices, in a letter from BlackRock Vice Chairman Mark McCombe to Board of Education Chairman Aaron Kinsey calling the move “reckless” and “irresponsible,” and asking for the decision to be reevaluated.

In a post responding to the Texas decision, BlackRock said that the move “is about short-term politics” and that it ignores “BlackRock’s consistent, long-term investment outperformance” on behalf of the state’s schools and families.

The announcement by Chairman Kinsey is about short-term politics and ignores the Texas schools and families who have benefited from BlackRock’s consistent, long-term investment outperformance on their behalf.

— BlackRock (@BlackRock) March 21, 2024

The response follows Kinsey’s announcement earlier this week of its decision to terminate its investment with BlackRock, citing the firm’s “dominant and persistent leadership in the ESG movement.” Kinsey said that the decision to terminate its investment with BlackRock was made in order to keep the Texas Permanent School Fund (PSF) in compliance with 2021 legislation, known as Senate Bill 13, which prohibits “investment in financial companies that boycott certain energy companies.” Kinsey also argued that BlackRock’s “destructive approach” to energy companies is “incompatible with our fiduciary duty to Texans.”

In his letter, McCombe calls the claim that BlackRock discriminates against energy companies “simply false,” pointing out that the firm holds over $320 billion in energy investments globally, including around $120 billion in Texas-based public energy companies, in addition to significant investments in energy infrastructure in the state.

McCombe also addresses Kinsey’s claim that the decision aligns with the board’s fiduciary duty, citing the firm’s “consistently strong performance” for the fund over nearly 2 decades, including outperformance of the firm’s international mandate over the fund’s benchmark over the 18-year relationship, “generating in excess of $250 million for Texas PSF.”

The letter also claimed that BlackRock learned of the decision through a press release, adding:

“Ending a long, successful partnership that has been a positive force for thousands of Texas schools and families in such a reckless manner is irresponsible.”

BlackRock, as the largest global investment management company, and a leading voice in the investment community on climate and energy transition-related investment themes, has found itself at the center of a vocal anti-ESG movement by Republican politicians in the U.S., who have accused the firm of following a social agenda, or of “boycotting” and working to harm energy companies.

While anti-ESG initiatives have picked up pace over the last few years, several analysts have warned that the divestment actions could come at significant cost to investors. An assessment by the Texas County & District Retirement System (TCDRS), for example, analyzing a proposed law last year at prohibiting ESG investing in the state’s public retirement investment system estimated that the legislation could cost the retirement system more than $6 billion over ten years in lost returns, and keep the system from partnering with top investment managers. Similarly, an analysis released by Kansas’s state budget division found that proposed legislation in the state prohibiting ESG investing in the state’s pension funds may cost the pension system as much as $3.6 billion in returns, and a study in Indiana that found that a rule mandating that the public pension system divest from funds that consider ESG factors would cost the system nearly $7 billion in returns over 10 years.

In his letter McCombe urged the board to reconsider its decision, adding:

“We are asking for a reevaluation of your decision in order to preserve the productive and mutually advantageous relationship between Texas PSF, our company, and the Texans we serve.”