Texas Law Makes Oil Divestment Illegal – And That’s Causing Legal Trouble

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Texas really wants to protect its fossil fuel industry. First, in September, 2021, the state voted Senate Bill 13 into law, which prohibits any active Texas firm from contracting with or investing in companies that divest from oil, natural gas, and coal. In essence: the Texas law prohibits anyone from boycotting fossil fuel companies financially.

To add another layer to the lunacy, this week Texas Comptroller Glenn Hegar sent letters to 19 investment firms to determine whether they were violating that new state law – and that’s just the start! The office plans to send more than 100 additional letters to determine who refuses to sink their hard earned dollars into Big Oil, with trouble following those who stand up for a zero emissions future.

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If you do business in Texas, you better not divest from fossil fuels, or you won’t get any of that decadent Texas funding that has propped up so many Texas businesses for a very long time. That the message being hammered down by the state Comptroller’s Office.

A press release states “the bill prohibits Texas state agencies that invest funds from investing in financial companies that boycott energy companies.” In the letters Hegar’s office sent are requests for lists of any mutual funds or exchange-traded funds (ETFs) in portfolios that prohibit or limit investment in fossil fuels.

Ultimately, the office will curate a list of companies that boycott fossil fuel energy.

If you own or manage a company maintains standards for emissions accountability, that continually improves and tracks progress toward zero emissions, and that operates with ESG (Environmental, Social, and Governance) transparency, you’re in real trouble if you do business in Texas.

Which investment firms received letters from the Texas Comptroller? JPMorgan Chase & Co., Wells Fargo & Company, Jupiter Fund Management PLC, and Sumitomo Mitsui Trust Holdings, Inc., BlackRock, Inc., and NatWest Group PLC, among others.

What’s in these letters?

  • Each company is queried whether it has policies on environmental standards that go beyond state and federal requirements.
  • If the answer is yes, the company must describe how those policies are enforced.
  • Each company must list mutual funds or exchange-traded funds that limit or don’t allow investment in fossil fuels.

What happens to a company that fails to respond to Hegar’s letter within 60 days? They will be presumed to be boycotting fossil fuel companies. As a result, they could find existing contracts with Texas governmental entities canceled, and Texas pension funds may delete them from their holdings.

The Momentum of Divestment: Texas isn’t Listening

All around the US and the world, companies, non-profits, and governments are divesting from fossil fuels companies and their subsidiaries due to their direct connection to the climate crisis. As 350.org founder Bill McKibben reminds us, “Most people don’t have oil wells or coal mines in their backyards, (so) divestment is a way to let a lot of people in on the climate fight.”

The effects of fossil fuels on global warming don’t interest Texas GOP lawmakers, though. In contrast, they’re doing all they can to prop up Big Oil. It’s the old adage of protecting them that brought you here. Heck, the Texas Tribune wrote last year about how the increase in donations for state officials looked a whole lot “like a reward for not passing more stringent regulations” and raised questions about whether “lawmakers let the oil, gas, and the broader energy industry off easy for its massive failures.” Yowza.

Comptroller Hegar wants to figure out once and for all how much — if at all — numerous major financial companies have policies and procedures in place that point clients elsewhere than fossil fuel company investments. That smart financial approach, called socially responsible investment, can be more pragmatic than ideological. Banks and asset managers are the epitome of capitalistic narcissism, and they move money away from risk and toward market influences.

BlackRock, the world’s largest asset manager, sent a letter to shareholders last year, appraising them of imperative new investment directions. “I believe we are on the edge of a fundamental reshaping of finance,” CEO Laurence Fink wrote. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

The Texas law preventing divestment means that billions of dollars in pension funds and school endowment money may be removed from some of the country’s biggest investment firms — including BlackRock.

The Paranoia that Divestment Inflicts

Texas lawmakers continue to insist that tackling climate change comes at a net cost to the global economy. Hegar questioned the:

“… handful of companies echoing promises by the Biden administration about a ‘transition’ to green energy. They’ve managed to convince people that electric cars and wind and solar power generation can meet our energy needs, and if we just stop investing in oil and gas, the transition will be swift and painless. Anyone who has paid any attention to recent events knows that just isn’t true.”

It’s climate-denial ideology to the 10th degree — fossil capitalism gone wild.

Hegar drilled down even on the motives of companies that co-invest in fossil fuels and clean energy –not just the ones that are boycotting fossil fuel companies.

“We know some of these companies hold investments in oil and gas today, but what about the future? Are they selling the hope of a ‘green’ tomorrow with promises to divest or reduce their fossil fuel exposure?”

So, while some companies continue to invest at least partially in fossil fuels enterprises and their subsidiaries — which likely will amount to stranded assets down the road — that’s not enough if you invest in Texas. Heaven forbid investment firms and their clients actively use financial wherewithal as a tool for positive social change. Or operate a “values-driven” enterprise according to principles of social justice and environmental sustainability.

Don’t even think about promoting environmentally responsible standards as you source, manufacture, and market your products and run your operations and facilities if you do business in Texas.

This law and the tracking of firms that boycott fossil fuels is scary and has the potential to lead to scrutiny of other socially equitable practices that benefit Texas workers, customers, communities, and the environment.

The Language behind the No Oil Divestment Texas Law

The law prohibiting boycotting fossil fuel companies in Texas reads in part as follows.

“Prohibition on investment in financial companies that boycott certain energy companies. Sec. 809.001.

“Boycott energy company” means, without an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial  relations with a company because the company:

    • (A) engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy and does not commit or pledge to meet environmental standards beyond applicable federal and state law; or,
      (B) does business with a company described by Paragraph (A).”

This is corporatocracy at its finest — fossil fuel companies forge laws that benefit themselves rather than the citizens.

We have to remember that the Texas Supreme Court agreed to listen to Exxon present an argument that, if it lied about what it knew about fossil fuels, those misrepresentations were protected free speech. Lies are now okay, because the Constitution let’s us say any damn thing we want, right?

Other Government-Speak that Protects Big Oil

Hegar and the Texas GOP lawmakers aren’t alone.

Just last week Sarah Bloom Raskin withdrew her nomination to the Federal Reserve Board after comments she made last year surfaced in which she suggested that regulators should “ask themselves how their existing instruments can be used to incentivize a rapid, orderly, and just transition away from high-emission and biodiversity-destroying investments.”

Senator Joe Manchin (D-Coal) said he could not endorse Bloom Rankin’s confirmation. Manchin has accepted more money from fossil fuel interests than any other senator during the current cycle.

Since the beginning of this year, state legislatures in West Virginia, Oklahoma, and Indiana have introduced a version of a law drafted by the American Legislative Exchange Council that it calls the Energy Discrimination Elimination Act. The legislation claims:

“American and European fossil energy producers … are among the most socially and environmentally responsible companies in the world… Banks are increasingly denying financing to creditworthy fossil energy companies solely for the purpose of decarbonizing their lending portfolios and marketing their environmental credentials.”

This backward-looking Act is analogous to companies that refuse to advertise with cigarette companies, or that choose iPhones over Blackberries, or prefer digital to analog clocks, who use laptops instead of typewriters, or text rather than listening to an answering machine, or who rely on digital databases instead of punch cards. Stick with the Golden Age, the Act intimates, even if it’s harming us or holding us back from being fully actualized individuals in a healthy society.

Being last century, though, is less important to many policymakers than protecting their own financial interests. Big Oil knows that. Boycotting fossil fuel companies comes with stiff consequences.

Featured image courtesy U.S. Coast Guard, from video by Petty Officer Third Class Aidan Cooney (public domain). The appearance of U.S. Department of Defense (DoD) visual information does not imply or constitute DoD endorsement.

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Carolyn Fortuna

Carolyn Fortuna, PhD, is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavey Foundation. Carolyn is a small-time investor in Tesla and an owner of a 2022 Tesla Model Y as well as a 2017 Chevy Bolt. Please follow Carolyn on Substack: https://carolynfortuna.substack.com/.

Carolyn Fortuna has 1279 posts and counting. See all posts by Carolyn Fortuna