(Texas Scorecard) – Two researchers presented data before a Texas Senate committee showing that the state law targeting global climate agenda policies in state investments and contracts is working as intended.
Eric Bledsoe, a senior fellow at the Foundation for Government Accountability, and William Hild, the executive director of Consumers’ Research, shared the findings Thursday before the Committee on State Affairs.
Bledsoe stressed that the so-called environmental, social and corporate governance policies—known popularly as ESG—trade “real capital for political capital” at the expense of beneficiaries’ financial security.
The policies first gained prominence in 2004 with the support of the United Nations and claim to provide a “responsible investing” framework that considers the global effects of climate change and other environmental issues while also generating a reliable financial situation for beneficiaries.
However, Bledsoe noted that investors’ fiduciary responsibility to beneficiaries often takes a back seat with ESG. He cited a 2019 study which found that out of 20,000 mutual funds representing over $8 trillion, regular funds outperformed ESG funds every time.
“Prioritizing political factors over maximizing returns—this makes money managers who promote ESG violate their fiduciary duty to beneficiaries,” explained Bledsoe.
Bledsoe commended Attorney General Ken Paxton’s 2022 letter to BlackRock executives, who at the time helped manage Texas’ pension system, for pushing ESG policies to the detriment of fiduciary returns.
Texas axed its last association with BlackRock in March 2024 when the State Board of Education pulled its executives from overseeing an $8.5 billion portfolio of the Permanent School Fund.
Bledsoe also highlighted that the state’s Teacher Retirement and Employees Retirement Systems have worked with proxy advisers to divest in firms pushing ESG.
Much of the recent push follows the passing of Senate Bill 13 in 2021, which restricted the State of Texas from pursuing contracts or investments with companies that boycott the oil and gas industry.
Still, a stronger measure from 2023 that sought to bolster the fiduciary responsibility of proxy advisers and investment managers in state investments, SB 1446, died in committee.
While observable change has occurred since SB 13, SB 1446 “more clearly protected fiduciary duty, protected proxy voting, and implemented accountability measures such as reporting, oversight, and enforcement,” contended Bledsoe.
Hild’s presentation keyed in on disproving a series of studies that have arisen critical of SB 13’s effectiveness and other state laws.
The most notable is the Gas, Guns, and Governments research paper by Daniel Garrett and Ivan Ivanov of the University of Pennsylvania. Garrett and Ivanov’s study specifically looks into the financial effects of five large municipal bond underwriters leaving the state after the measure passed in 2021.
“The study actually acknowledges that post-collection of the data and the publication of the study, many of the issuers came back into the State of Texas,” said Hild. “They are issuing municipal bonds today.”
Gas, Guns, and Governments, as well as other similar studies, led Hild to recommend lawmakers explore “the people who have published these studies and their funding” in a future committee hearing.
He additionally warned that even if a state or individual’s money isn’t in an explicitly labeled ESG fund:
If you have a dollar with State Street or BlackRock, those companies have committed through their membership in Glasgow Financial Alliance for Net Zero to push net zero (carbon emissions) with your assets.
Later, Hild was asked by lawmakers what he believed the greatest effect of SB 13 had been. He concluded that, now, banks understand there is a “cost in politicizing assets under management for states.”
Bledsoe, meanwhile, called the legislation a “clear signal from Texas that it stands firm on fiduciary duty and takes that very seriously.”
We’ve seen, as Will said, a response from asset managers. Some I think are good-faith responses, some maybe not so much. Vanguard has pulled out of a lot of these ESG schemes. BlackRock has pulled domestically out of Climate Action 100, but internationally has stayed a member of Climate Action 100.