Politicians should stop playing culture war politics with public funds

American Banker, Sam Raus

This month the State of Texas government terminated an $8.5 billion investment managed by BlackRock, the world’s largest asset management firm, over the company’s continued use of environmental, social and governance (ESG) standards. The investment came from the Texas Permanent School Fund, or PSF, which finances the state’s public school systems. 

Accusing BlackRock’s investment strategies of discriminating against Texan oil and gas companies, as well as violating their fiduciary duty, the State of Texas continues its yearslong battle with America’s major financial institutions over ESG. The decision received an outpouring of support from Republican lawmakers and conservative groups, including the Heritage Foundation and Club for Growth.

Anti-ESG Texas politicians criticize BlackRock for politicizing investment strategies and neglecting its fiduciary duty. But, truthfully, they are the ones who prioritize performative virtue signaling and culture wars over the fiscal stability of Texas schools. By ignoring BlackRock’s superior performance and the basic principles of free-market capitalism, the Texas government enables empty claims about ESG standards and extends political polarization into the private sector.

Texas State Board of Education Chairman Aaron Kinsey ended the investment due to a 2021 state law targeting ESG-aligned business. The law prohibits state agencies from working with companies listed as refusing to manage investments for fossil fuel companies. However, as of 2022, BlackRock had reportedly invested $170 billion into American energy companies, including oil pipelines and power plants and strictly considers climate change impacts from a financial outlook. By all measures, BlackRock’s ESG standards align with their fiduciary duty. 

The ongoing political backlash against various companies’ ESG policies repeatedly fails to produce evidence of lowered financial returns. Rather, ESG-aligned asset managers like BlackRock continue beating expectations with their comprehensive risk mitigation strategy for evolving energy and environmental issues. Blackrock consistently outperforms expectations for the Texas PSF, surpassing decade-long benchmarks.

The $8.5 billion divestment represents a large share of the $53 billion fund and faces intense scrutiny for jeopardizing critical school resources. Economic studies indicate the ESG boycott law will cost Texans hundreds of millions of dollars otherwise used to pay for teacher salaries or school resources. Kinsey’s decision is the largest ESG-based divestment since Republican-led states began ending financial ties to BlackRock and other institutions with similar policies. 

The divestment also contradicts previous statements by Texas PSF leadership which described BlackRock as having “strong performance” and “attractive fees.” Kinsey’s announcement failed to provide statistics indicating his claims of ESG-induced “damages” to Texas oil and gas companies or the Texas PSF fund.

ESG strategies consider long-term changes in the energy industry, environment and consumer trends when making investment decisions. Regardless of lawmakers’ personal views on clean energy, environmental protection and public sentiment on climate change, private enterprise maintains the foundational right to consider these factors in how they conduct business. The free market responds to the people’s demands, not the state’s.

Republican politicians, who traditionally advocate for lower corporate tax rates, deregulation and a hands-off approach to economics, shouldn’t browbeat companies into accepting their energy and environmental conclusions through executive action. Doing so only mimics the politics of progressives, ceding moral authority and permitting them to further erode religious liberty, free speech and parental discretion. Conservative perspectives can elevate using traditional business tactics, whether through consumer boycotts — as seen with Bud Light and Target — or creating alternative options like Vivek Ramaswamy’s Strive asset manager.

Politicians should also stop accusing BlackRock and other financial institutions of failing to meet their fiduciary duty without adequate fiscal evidence. The war on ESG continues to invoke fiduciary duty as the ultimate critique of this long-term perspective on energy and environmental factors, yet repeatedly fails to produce the data. Rejecting this pushback, BlackRock’s ESG investments continue to grow tremendously and likely indicate broad market interest in clean energy solutions and climate-conscious infrastructure development.

It’s time for the center-right to set aside the head-in-the-sand view of rising sea levels and warming average temperatures. Legislators can disagree on energy regulations, carbon taxes and other policies. But politicizing the market performance of essential investments, such as a public school fund, puts social signaling over America’s economic prosperity. A capitalistic political movement cannot survive under this paradoxical philosophy.

Sam Raus Student, University Of Miami

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