The Texas Permanent School Fund (PSF), an important financial source for the state’s public schools, is cutting ties with investment giant BlackRock in a heated dispute focused on environmental, social, and governance (ESG) investing. This has sparked a national discussion about the impact of ESG investing on public finances and the potential effects on long-term financial stability.
The Texas State Board of Education, headed by Chairman Aaron Kinsey, declared on Tuesday that it is withdrawing $8.5 billion currently under BlackRock's management. In a statement filled with tension, Kinsey accused BlackRock of holding a controlling and enduring role in the ESG movement, asserting that these practices severely harm our state’s oil & gas economy and the companies that generate revenues for the PSF.
However, BlackRock strongly disputed these allegations. A company spokesperson highlighted BlackRock's substantial investments in Texas energy companies, valued at over $120 billion. The statement also argued that the decision to detach from BlackRock values politics over financial performance, particularly for taxpayers.
“Today’s independent and arbitrary decision by Board of Education Chair Aaron Kinsey endangers Texas schools and the families who have benefited from BlackRock’s consistently strong long-term performance for the Texas Permanent School Fund,” stated the BlackRock spokesperson. “The decision overlooks our $120 billion investment in Texas public energy companies and goes against expert advice. As a trustee, politics should never outweigh performance, especially for taxpayers.“
This conflict mirrors a broader national debate on ESG investing. Texas, along with other Republican-led states, regards ESG practices with suspicion, fearing they threaten the fossil fuel industry, a vital sector for their economies. Critics argue that ESG investing prioritizes social and environmental objectives over maximizing returns, potentially endangering the health of public funds such as the PSF.
Texas Senator Bryan Hughes, who spearheaded legislation against ESG in 2023 and chaired a hearing questioning BlackRock executives on their ESG practices, echoed this view in a social media post after the announcement.
“BlackRock and Wall Street firms similar to it have been using Texans’ money to promote a left-wing agenda,” Hughes said. “Texas continues to resist. This is why we’re withdrawing $8.5B from BlackRock, clearly conveying to Wall Street firms that they cannot utilize taxpayer money to harm Texas jobs and challenge our energy dominance.“
However, pulling out from BlackRock might have consequences. Experts caution that such actions could result in lower returns for the PSF, ultimately damaging Texas schools. An evaluation by the Texas County & District Retirement System (TCDRS) studying a proposed anti-ESG law last year projected that the legislation could lead to the retirement system losing over $6 billion in returns over ten years.
Adrian Shelley, director of left-leaning nonprofit Public Citizen, criticized the decision, arguing that it amounted to a government requirement to support the fossil fuel industry.
“The state is basically requiring private companies to invest in BlackRock in order to do business with the state,” Shelley said. “It’s using strong-arm political tactics in a fund that helps public schools.“
Kinsey, however, defended the decision urgently, emphasizing the serious threat a declining oil and gas industry poses to the PSF’s long-term health.
“That money comes mainly from the oil and gas industry,” Kinsey told Reuters. “If there’s no income, no billion dollars a year from oil and gas, that’s a problem for our fund, obviously an existential long-term risk.“
The Texas-BlackRock clash highlights the complicated and often contentious relationship between financial institutions, environmental concerns, and the economic well-being of states. ESG investing has become a flashpoint, forcing states to grapple with the competing priorities of financial returns, environmental sustainability, and the economic interests of powerful industries. As the national debate on ESG investing continues, only time will tell how this dispute will be resolved and what impact it will have on Texas schools, the future of the PSF, and the broader conversation on ESG investing in the United States.
