A Texas statute targeting perpetrators of “ESG” includes a significant number of investment funds that don’t have a genuine environmental, social or governance focus.
Of the 348 funds singled out by Texas Comptroller Glenn Hegar, 14% don’t qualify as ESG, according to an estimate by Morningstar Inc. What’s more, almost 40% invest in the oil and gas industry they’re accused of boycotting, data compiled by Bloomberg show.
It’s the latest counter-intuitive moment in an unlikely battle that has thrust a once obscure financial acronym into the center of American politics. Ironically, many of the firms and funds targeted by the GOP for sidelining oil and gas have been criticized by climate activists for their continued support of the fossil-fuel industry.
(Bloomberg)
“The fact that many funds on the banned fund list hold companies involved in the oil and gas industry raises questions about the research done by the Texas comptroller on these investments,” said Hortense Bioy, global director of sustainability research at Morningstar. “Clearly, these funds aren’t boycotting energy companies.”
The state’s position hasn’t changed since the decision was announced last month, said Chris Bryan, director of communications for the Texas comptroller. The test isn’t that the funds are ESG focused, the test is on whether the funds boycott energy companies based on state statute, which is broader than just having oil and gas investments, he said.
“If new information is provided to us about the funds, we will actively consider whether to update the list and we will do this on a regular basis,” Bryan said.
Hegar denounced Wall Street and “environmental crusaders” in August for creating a “false narrative” that the economy “can completely transition away from fossil fuels, when, in fact, they will be part of our everyday life into the foreseeable future.” Aside from 348 investment funds, the state targeted 10 asset managers and banks, including BlackRock Inc. and Credit Suisse Group AG. Texas Attorney General Ken Paxton also has joined a multistate investigation, questioning Morningstar’s use of “ESG factors.”
BlackRock, which has since been slammed by Democratic states for appearing to backtrack on its pledge to cut CO2 emissions, said GOP attacks ignore the fact that it holds more than $100 billion in Texas energy companies. It would therefore be “inaccurate” to accuse it of boycotting fossil fuels, Dalia Blass, BlackRock’s head of external affairs, said on Sept. 7.
Applying an ESG investment approach generally entails screening for environmental, social and governance opportunities and risks. Some fund managers apply exclusion policies, while others adopt so-called engagement strategies, whereby they continue to hold sectors such as oil and gas with a view to helping the companies adapt to a low-carbon world. ESG often faces criticism from activists for being too focused on financial performance.