Texas is drawing battle lines in a fight against investors and companies turning their backs on fossil fuels.
Gov. Greg Abbott signed a bill into law Monday banning state investments in businesses that cut ties with the oil and gas industry. The underlying message, according to one of the most powerful energy regulators in the state, is simple: Boycott Texas, and we'll boycott you.
The new measure is Texas' Republicans latest rebuke of ESG investing as the state clings to its status as America's crude capital. Oil and gas companies, already under pressure to funnel more cash into dividends to please shareholders, are now having to reckon with major corporations from Wall Street banks to Silicon Valley tech giants deeming climate change as a top priority when determining investments.
Last month, Texas Railroad Commissioner Wayne Christian, a Republican, called on the Securities and Exchange Commission, U.S. President Joe Biden and Congress to issue rules regulating sustainability-focused investments so they don't discriminate against oil and gas producers. In addition to being Texas' top oil and gas regulator, the Railroad Commission is also known for being one of the industry's most ardent supporters.
"The concerns that would arise in considering the larger universe of business development in the state, like discussion of climate change and changes in corporate practices, are all moving to the back of the line," said Jim Henson, a professor at the University of Texas at Austin who heads the Texas Politics Project. "We're not at a point where these kinds of considerations are going to outweigh partisan gestures like this."
In reality, the new law probably won't lead to massive selling by state funds like the Teacher Retirement System of Texas or the Employees Retirement System of Texas. Thanks to a number of amendments, a fund may be able to justify holding stock in, say, Google-parent Alphabet — which won't provide AI services for oil and gas production — by demonstrating that it would be bad for its members if it was forced to sell. And if an offending company is held indirectly, like through a private equity fund, there's another exception.
In another blow to Wall Street, Mr. Abbott also signed legislation Monday that would ban state and local governments from work with companies whose policies restrict the firearms industry. The law could hurt Bank of America and Citigroup's municipal underwriting businesses in Texas, a huge market for state and local debt deals. The banks announced policies that set restrictions on the firearms industry in 2018.
The bills are the latest examples of the growing divide between Republican lawmakers and corporations that have taken a public stance on hot-button issues. Last month, American Airlines and Microsoft were among companies that wrote Texas leaders, urging them to "oppose any changes that would restrict eligible voters' access to the ballot" as the state worked to finalize bills that would make it harder to vote in certain areas.