Advice to BlackRock: Attack the problem, not your customer

The Texas Permanent School Fund was right to distance itself from anti-fossil fuel activism

We’ve written extensively about BlackRock leading the ESG charge and the dangers that widespread anti-fossil fuel activism in the financial space presents to our economy, energy access, and quality of life. BlackRock’s automatic response has always been that it doesn’t technically “boycott” fossil fuels — it does, after all, invest selectively in oil and gas.

If only it were that simple.

Today I’m sharing an important article by three business leaders unpacking the several ways BlackRock’s actions plainly violate the recent state law that prohibits investment firms from doing business with the State of Texas, which has led to yet another state-operated fund turning the tables and divesting from BlackRock.

This matters not just for Texas, but for the whole nation. Over a dozen states have now passed laws prohibiting firms that engage in anti-energy ESG practices from contracting with the state. Momentum is still growing as more and more states are learning the far-reaching consequences of limiting our energy choices and becoming dependent on either unstable oil exporters or unstable renewable energy sources that don’t work when the weather doesn’t cooperate.

The following article originally appeared in the Dallas Morning News:

When Aaron Kinsey, chair of the State Board of Education, recently announced the Texas Permanent School Fund would divest $8.5 billion from BlackRock Inc., the New York-based investment company decided to attack its customer, publicly calling the decision “reckless” and “irresponsible.”

Newly-enshrined Texas law prohibits the state and the fund, which the State Board of Education manages, from doing business with financial companies that boycott fossil fuels. Texas’ definition of boycott includes “any action that is intended to penalize ... a company” because of that company’s production or use of fossil fuels. As required by the law, Texas Comptroller Glenn Hegar’s investigation found that BlackRock does boycott fossil fuels.

This finding follows from BlackRock’s net-zero emissions commitments and its votes to penalize directors for not reducing their companies’ emissions beyond what’s required by law.

After this finding, BlackRock could have changed its practices and refocused on fiduciary duty, but instead, it continued to remain part of activist climate groups and push companies to phase out fossil fuels. In response to the new law, school-fund officials carefully considered their options, invited a BlackRock representative to speak about the issue, and followed the law.

The facts supporting the fund’s decision are clear. BlackRock is a member of an anti-fossil fuel alliance called the Net Zero Asset Managers initiative. To join, BlackRock committed to use a clear voting policy across all of its assets to achieve net-zero greenhouse gas emissions. This means BlackRock promised to use its clients’ money, including school fund assets, to vote against directors when a company isn’t phasing out fossil fuels.

Net zero is a radical goal that includes a dramatic worldwide reduction of natural-gas powered electricity generation. In Texas, that would affect more than 44% of the electricity on the grid.

BlackRock has followed through on its net-zero promises many times. For example, BlackRock voted against the directors at ExxonMobil, Woodside Petroleum, Whitehaven Coal and Air Liquide because the companies weren’t demonstrating enough of a commitment to reducing emissions. For energy companies, reducing emissions is basically promising to cut sales. This is because net-zero activists count not just the energy company’s emissions, but also the final customer’s energy use as an emission by the energy company.

BlackRock has also announced fossil fuel divestments that violate Texas law. In 2020, BlackRock said that its active portfolios would divest from companies that derived more than 25% of their revenue from thermal coal production. Since BlackRock’s announced divestment date of mid-2020, the price of coal has nearly tripled, and many thermal coal producers have delivered impressive returns to stockholders. But investors subject to BlackRock’s misguided policy missed out on these returns.

These are not isolated examples. BlackRock’s votes at annual corporate shareholder meetings would shock most investors. Analysis by the State Financial Officers Foundation (SFOF), based on BlackRock’s own SEC filings, found almost 600 instances in which a BlackRock fund voted in favor of proposals from climate activist groups that sought to pressure companies away from fossil fuels. The SFOF study could only find three instances in which BlackRock funds voted for pro-fossil fuel resolutions.

SFOF’s study also shows that a BlackRock fund voted more than 170 times in favor of resolutions to pressure companies to stop funding organizations with supposed pro-fossil fuel views, including the U.S. Chamber of Commerce and SFOF. Punishing companies for working with organizations that disagree with BlackRock’s position is an assault on the culture of open debate that is core to our national character. Texans are right to feel betrayed.

There are numerous other examples of BlackRock’s actions against fossil fuels. For example, BlackRock co-led a report that explained to financial companies how to use their ownership stakes in energy companies to force those companies to phase out fossil fuels. This report specifically targeted power plants that use fossil fuels, as well as gas pipelines and oil fields, all critical things for Texas.

BlackRock argues that because its funds have large holdings in energy companies, it doesn’t meet the definition of a boycott under the law. This is a red herring. BlackRock sells investment products that track an index, like the S&P 500. Energy companies are included in these indexes. So, of course BlackRock owns shares in energy companies — they have to.

The authors of Texas’ new law had the foresight to recognize that the boycotting of fossil fuels includes actions beyond just divestment. So, how BlackRock is using the shares it stewards also violates the law.

A company in crisis can either attack its customers or attack the problem. Under Texas law, BlackRock is clearly boycotting fossil fuels. Instead of blaming the Texas Permanent School Fund for following the law, BlackRock should renounce its commitments to misuse client assets to push a political agenda, and institute transparent safeguards that prevent the issue from ever re-emerging. Only then can Texas and other investors feel safe allowing BlackRock to manage their funds.

Harlan Crow is an investor from Dallas. Robert B. Rowling is the chairman of TRT Holdings. Dick Weekley is the chairman of Weekley Development Company.