Texas Lawmakers Grill BlackRock, State Street over ESG Investing: “We Wish You Weren’t There”

Executives from investment giants BlackRock and State Street were grilled by Republican lawmakers on the Texas Senate Committee on State Affairs over their ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. and climate-related stewardship, engagement voting and investment practices in a committee hearing on Thursday.

At the hearing, described by the Senate as ensuring that “the state’s public pension funds are not being invested to further political or socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. causes,” the committee, led by Senator Bryan Hughes repeatedly challenged BlackRock Head of External Affairs Dalia Blass and State Street Global Advisors (SSGA) Global CIO Lori Heinel, over climate-related statements made by their respective firms, specific engagements and votes by each, and their participation in climate-focused investment associations such as Climate Action 100+, which that targets the world’s largest corporate greenhouse gas emitters to promote taking necessary action on climate change.

The hearing formed part of an ongoing anti-ESG push by Republican politicians in the U.S., which recently saw 19 Attorneys General sign a letter accusing BlackRock of acting with “mixed motives” in its pursuit of an anti-fossil fuel and pro-net zero agenda, and Texas Comptroller Glenn Hegar place BlackRock and several other asset managers on a list for potential divestment for allegedly boycotting energy companies.

In a video statement explaining the motivation behind the hearing, Hughes said:

“Our topic today was ESG… What that means to us is that a few Wall Street firms are politicizing our economy, and they’re using our money and casting votes with these corporations that mean killing Texas jobs and raising the cost of Texas energy, and of course when the cost of energy goes up, the cost of everything goes up.

“We want to make sure that these companies are held accountable.”

In her opening statement to the committee, Blass countered claims that BlackRock was boycotting energy firms, noting that “we are significant investors in public energy companies, including many here in Texas, such as Exxon, ConocoPhililps, Valero, Phillips 66, Occidental Petroleum and Cheniere.”

When asked about BlackRock’s support last year for a resolution to replace directors at Exxon over the company’s inaction on climate risk, Blass pointed out that BlackRock is among Exxon’s largest investors, with $27 billion invested in the company on behalf of clients.

Hughes responded:

“That’s our concern. We wish you weren’t there.”

Blass and Heinel both testified that their firms’ stewardship, engagement and voting policies are primarily focused on improving company disclosures on risks material to their businesses and their climate policies in light of the transition to a low-carbon economy and rising regulatory pressure on environmentalEnvironmental criteria consider how a company performs as a steward of nature. impact in jurisdictions around the world.

Blass said:

“Our goal in our stewardship and engagement and our voting, frankly the ultimate goal is long-term performance. This is why we engage, this is why we vote. If we take voting action against a company, it’s because we have concerns with their governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. or performance.”

Blass also pointed out that the vote at Exxon followed years of engagement during which the company lost 60% of its value, and that since the vote, Exxon has outperformed the market and its peers.

Similarly, Heinel pointed out that SSGA has $65 billion invested in Texas firms, and said that the firm’s approach to ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. is based in its role as a fiduciary for the firm’s clients, with long-term performance as the firm’s “sole focus,” adding:

“We believe that company-specific material ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. factors, climate impacts, but also many others, such as supply chain management, data security and the treatment of hazardous waste, to name a few, have the potential to impact the performance of investments we manage for our clients.”

While investment manager Vanguard had also been summoned to appear at the hearing, Hughes released a letter to sent to the firm on Wednesday saying that the committee no longer planned to call a representative from the firm to appear, following Vanguard’s decision last week to withdraw from the Net Zero Asset Managers initiative. The letter warned, however, the “we will continue to evaluate your ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. practices.”

In his video statement after the hearing, Hughes added:

“We’re going to make sure that they’re not taking Texas money and using it against us in pushing their narrow political agenda.”

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