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Climate Change

Texas Is In Turmoil, As Green Finance Is Very Appealing To Major Funds

Laws to limit divestment in Texas have met with resistance, as bankers and analysts have figured out ways to detour around Big Oil in portfolios.

From the point of view of oil producing US states, too many funds have helped investors move away from fossil fuel companies, and fossil fuel companies have been very, very generous to the folks at home. These mostly red states argue that the climate crisis is a longer term problem with multiple solutions, including carbon capture, so they figure that green finance is little more than a ploy to weaken the strength of oil-reliant regions.

Texas is one of those states, and last year its legislature passed a law that said if you don’t include fossil fuel companies in your portfolios, then you can’t do business in our state. The law bars Texas’ state retirement and investment funds from doing business with companies that the State Comptroller says are “boycotting” fossil fuels.

“This bill sent a strong message to both Washington and Wall Street that, if you boycott Texas energy, then Texas will boycott you,” Texas Representative Phil King said from the floor of the Texas legislature during deliberations on the bill, SB 13, last year.

The law sounded good to lots of Texans, at least initially. Its implementation, however, has been rather messy due to loopholes and exceptions written into the law.

The Push to Limit Green Finance is “Challenging”

This March, the Texas State Comptroller began sending letters out to financial institutions, probing their climate policies. Leslie Samuelrich, president of Green Century Capital Management, a fossil fuel-free mutual fund, told NPR her firm recently received its letter, and “it felt very politically motivated.”

Right now, Green Century Capital Management isn’t changing its advice to investors.

That’s because the law contains numerous exceptions. For example, companies that want to work with Texas can still avoid investing in fossil fuels as long as they are doing so for strictly financial, rather than ethical or environmental, reasons.

Texas is now learning how hard it is to sort out which firms are actually leaning toward divestment. There are no national standards for companies to report their greenhouse gas emissions, so figuring out who is investing in green finance is actually quite difficult.

Moreover, the new law applies to new or existing contracts greater than $100,000.

A spokesman for the Comptroller’s office says the process “has proven challenging.”

Nonetheless, The Texas Effect Spreads

Other states that depend on the kindness of fossil fuel companies find Texas’ divestment ban very appealing. At least 7 other states have similar legislation in the works or on the books.

For example, in January, West Virginia declared that it was barring the company from managing its state pension funds. In March, the Arkansas State Treasurer March withdrew $125 million from money market accounts managed by BlackRock. The effort includes treasurers from other states with large energy industry presences such as North Dakota, Kentucky, Pennsylvania, and Oklahoma.

Could these states gain momentum as a collective force and reduce the impact of divestment on Wall Street? Texas is a powerful role model.

Employment in Texas oil and gas production jumped by more than 5,000 jobs last month, making it the biggest leap in over a decade and the second highest in 30 years, the Texas Oil and Gas Association said in a statement. The oil and gas production sector employed 181,900 people in Texas in February, up 16% compared to 157,000 in September 2020, the lowest point of the pandemic-induced employment slump. The job growth comes as the war in Ukraine continues, disrupting oil and gas supplies from Russia — a leading world supplier of oil — and driving up oil prices.

Those are the kinds of stats that fossil fuel lobbyists whisper in the ears of the state’s politicians. Legislators and lobbyists in Texas often have close relationships. For example, the new anti-divestment law was written by Jason Isaac, a former legislator whose foundation is partially funded by the fossil fuel industry.

“The state of Texas is a large state with a lot of money,” says Rob Greer, associate professor in the Bush School of Government and Public Service at Texas A&M University. “They can certainly sort of make a difference. But when you’re talking about the largest financial institutions…the global trends are going to be those that dictate a lot of this – and the state of Texas may may be out of sync with some of those global trends.”

Yes, pro-fossil fuel Texas state officials have $600 billion in pension and other financial assets under their control. That’s a lot, right? Well, it is, and it isn’t.

There is a total of $5.6 trillion in public pension funds and related assets in 6,000 separate public-sector retirement systems across the nation, as reported by The Nation. Partially, this disparity arises because fossil fuel dependent states have historically provided weaker pensions for their public employees, so, in an interesting turn of events, now states working toward zero emissions have bigger public pools of capital to invest. Even for sizable investment banks, such funds can be some of their largest accounts. Pension funds have the potential to drive positive social climate action.

The push to divest across these other public employee funds may have the opposite effect, spurring even more firms to realize that they can invest fossil fuel free.

Must Texas Depend on Fossil Fuels for its Economy?

Texas is the top crude oil and natural gas producing state in the nation. In 2020, Texas accounted for 43% of the nation’s crude oil production and 26% of its marketed natural gas production.

Yet fossil fuels need not hold sway over Texas energy.

Texas leads the nation in wind-powered generation and produced about 28% of all US wind-powered electricity in 2020. Wind power surpassed the state’s nuclear generation for the first time in 2014 and produced more than twice as much electricity as the state’s two nuclear power plants combined in 2020. Texas produces more electricity than any other state, generating almost twice as much as Florida, the second-highest electricity-producing state.

“I see this as just the next or one of many symbolic actions,” David Spence, a law professor at The University of Texas, Austin, commented about the Texas law and its attempt to block divestment efforts.

The Texas Comptroller’s office did not comment on the effect of exemptions in the law. A spokesman for the office directed such questions to the legislature.

“We don’t know what the impact will be to corporate behavior and wouldn’t want to speculate on how companies will respond,” the spokespersons did mutter.

 

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Written By

Carolyn Fortuna (they, them), Ph.D., 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 Leavy Foundation. Carolyn is a small-time investor in Tesla. Please follow Carolyn on Twitter and Facebook.

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