The Texas State Board of Education announced on Tuesday the termination of an investment with BlackRock, pulling $8.5 billion in funds from the investment giant, with a statement by the Board’s Chairman Aaron Kinsey citing BlackRock’s “dominant and persistent leadership in the ESG movement.”

BlackRock, as the largest global investment management company, and a leading voice in the investment community on climate and energy transition-related investment themes, has found itself at the center of a vocal anti-ESG movement by Republican politicians in the U.S., who have accused the firm of following a social agenda, or of “boycotting” and working to harm energy companies.

Texas has been one of the most active states at the forefront of anti-ESG initiatives, with recent actions including banning UK bank Barclays from the municipal bond market over its ESG policies, creating a list of asset managers for potential divestment for allegedly boycotting energy companies, as well as conducting a hearing grilling executives from BlackRock and State Street over their ESG and climate-related stewardship, engagement voting and investment practices.

While the state has become increasingly active in its anti-ESG advocacy, however, its actions may come at a significant cost to investors. While several states have introduced proposals to disallow ESG investing, many have faced pushback over the cost and estimated lost returns likely to result from these anti-ESG initiatives. An assessment by the Texas County & District Retirement System (TCDRS), for example, analyzing a proposed law last year at prohibiting ESG investing in the state’s public retirement investment system estimated that the legislation could cost the retirement system more than $6 billion over ten years in lost returns, and keep the system from partnering with top investment managers.

In a social media post following the Board of Education announcement, Senator Bryan Hughes, who filed the 2023 anti-ESG legislation and led the above-mentioned hearing, said:

“BlackRock and Wall Street firms like it have been using Texans’ money to push a left-wing agenda.

“Texas continues to fight back.

“That is why we’re pulling $8.5B from BlackRock, making it clear to Wall Street firms that they cannot use taxpayer money to hurt Texas jobs and attack our energy dominance.”

In the statement, Kinsey said that the decision to terminate its investment with BlackRock was made in order to keep the Texas Permanent School Fund (PSF) in compliance with 2021 legislation, known as Senate Bill 13, which prohibits “investment in financial companies that boycott certain energy companies.”

Kinsey added:

“BlackRock’s dominant and persistent leadership in the ESG movement immeasurably damages our state’s oil & gas economy and the very companies that generate revenues for our PSF.”

In a recent statement pushing back against claims made during a Republican presidential debate that BlackRock is pushing an ideological agenda and that it holds back energy companies from producing oil, BlackRock CEO Larry Fink highlighted the firm’s close ties with the energy industry, noting that the firm’s clients have invested over $170 billion in U.S. energy companies.

Despite the political pressure, however, BlackRock signaled earlier this year in its release of its 2024 engagement priorities that its engagements with companies would continue to include sustainability-focused topics such as “Climate and natural capital” and “Company impacts on people.” while also explaining that its approach to climate-related risks and opportunities focused on understanding the expected impact of these factors on companies’ strategies and long-term business models, and stressing that “it is not our role to engineer a specific decarbonization outcome in the real economy.”

In a statement following the Texas State Board of Education announcement, a BlackRock spokesperson said:

“Today’s unilateral and arbitrary decision by Board of Education Chair Aaron Kinsey jeopardizes Texas schools and the families who have benefited from BlackRock’s consistent long-term outperformance for the Texas Permanent School Fund. The decision ignores our $120 billion investment in Texas public energy companies and defies expert advice. As a fiduciary, politics should never outweigh performance, especially for taxpayers.”