BlackRock Removed from Texas Blacklist After Climate Policy Withdrawal

BlackRock, the world's largest asset manager, has been taken off the official blacklist in Texas after a strategic retreat from a number of climate-related causes. It was delisted after almost three years of being named by Texas officials as boycotting the oil and gas industry—an accusation that had rested on BlackRock's previous sustainability-themed investment strategy.

The firm, with over $11.6 trillion in worldwide assets, had been under siege in Texas since 2021, when the state enacted a law that was designed to go after financial firms seen as divesting fossil fuel investments. BlackRock was one of the most high-profile names included, even though it claimed ongoing support for the oil and gas industry, having invested more than $100 billion in energy firms that operate in Texas.

Texas state officials confirmed that BlackRock has withdrawn from two loans of a high profile climate-oriented loans and reshuffled its investment policy to express support for conventional types of energy. The move enabled Texas to grant the asset manager approval to return loans to managing public funds, including state pension and investment portfolios.

This move comes after weeks of US national controversy on the use of environmental, social, and governance (ESG) considerations when investing. BlackRock itself had been at the forefront of folding ESG into investment decision-making before, with its own managers openly advocating for climate risk addition to investment portfolios. But the firm's aggressive green rhetoric had also attracted pushback, most prominently from conservative ranks and fossil fuel-dependent states such as Texas that generate significant fossil fuel revenue.

The Texas state legislative action was initially aimed at shielding the state economy against what lawmakers viewed as discriminatory financial policy. Public institutions were mandated under the 2021 legislation to divest from companies that were boycotting fossil fuels. Billions of dollars thereby were withdrawn from BlackRock's control by state-controlled funds. Although BlackRock asserted that it never boycotted fossil fuel and that it preferred diversification of energy, its ESG-aligned policy was perceived as contrary to Texas' interest in energy.

Although Texas has since okayed BlackRock for reinvestment, the company continues to be on equivalent blacklists in other US states like Oklahoma and Indiana. This is part of a larger political and regulatory context where ESG investing continues to be under siege overall, particularly in coal, oil, and gas-reliant regions.

The Texas blacklist itself now contains no significant US-based banks, but rather takes aim at specific European banks like UBS and BNP Paribas. This is a divergence from American companies after BlackRock came into compliance with local standards on investing in fossil fuels.

In addition to the blacklist reversal, BlackRock is also being sued by the Texas Attorney General. BlackRock has been accused of acting in an anti-competitive fashion by sponsoring campaigns that negatively impact the coal business. BlackRock denied any impropriety, but the case also alludes to the increased scrutiny companies committing to climate finance norms are facing.

Adding to the legal battles, BlackRock recently settled a similar lawsuit in Tennessee, again hinting it is eager to shed regulatory crumbs and redesign its scheme for greater political support. But continued pushback in much of the country means the firm's balancing act between global sustainability objectives and state-by-state political requirements has a long way to go.

Amidst these state-level battles, BlackRock's bottom line and size remain intact. With trillions of dollars of assets under management, the firm's international operations continue to dominate asset management across a broad spectrum of industries. Yet, in an attempt to protect its reputation and maintain relationships with leading stakeholders in the United States, the firm seems to be modifying its model of ESG engagement—largely in countries with climate-aware investing laws.

The case points out the dilemma confronting multinational companies conducting business in politically split jurisdictions. Asset managers have a duty on the one hand to incorporate long-term risks such as global warming; however, they also face pressure from some states to prioritize short-run economic interests in the vicinity of conventional energy sectors.

BlackRock's new policy changes and affiliations are reflective of a global trend of financial institution strategic realignment. As state and federal policy remain on diverging paths concerning ESG considerations, firms will be forced to broker region-specific trade-offs for regulatory compliance and business as usual.

For BlackRock, being delisted from Texas' blacklist is a decent, albeit modest, piece of news. It enables the company to continue business with an important financial center and potentially serves as a template for others. But the decision also constitutes a rewriting of its climate risk communications, which may shift the way the firm approaches ESG going forward.

Source: WSJ, KnowESG