In August, the Texas Senate Committee on State Affairs requested documents from the financial firms BlackRock, State Street, Vanguard, and Institutional Shareholder Services. The State Affairs Committee is studying the investment practices of financial services firms and how those practices affect the state’s public pensions. It is responsible for ensuring the state’s public pension funds are not being invested in furthering political or social causes.
Now, Texas has issued a subpoena to BlackRock to provide documents in person for failure to produce the requested records. Representatives of the asset manager are ordered to appear on December 15, the same day the State Affairs Committee has called to convene the entire committee for a hearing. The committee requested that the “Big Three” asset managers — BlackRock, State Street Global Advisors (State Street), and Vanguard — appear. They also want to speak with Institutional Shareholder Services (ISS).
The purpose, as mentioned above, is to discuss the effects of environmental, social, and governance (ESG) policies on the state’s pensions programs. These policies are called ESG investing or “woke capital.” The Big Three have a history of using the leverage of their combined proxy votes in shareholder meetings to influence company strategy, operations, and policy to benefit almost exclusively left-wing causes.
The most frequently cited ESG policies have to do with climate change. For example, the Net Zero Asset Managers Initiative boasts that State Street committed 14% of its assets under management (AUM) to supporting investments aligned to produce net zero emissions by 2050. That is equivalent to $582.7 billion of other people’s money that State Street manages. BlackRock is still a member, and Vanguard left the group Wednesday after pressure from several state attorneys general and Consumers’ Research.
The question is whether these type of commitments violate the asset managers’ fiduciary responsibility to the Texas pension system. They are required to run their plans solely in the interest of participants and beneficiaries, not activist third parties like Net Zero. Their funds should be run for the express purpose of providing the best return with the lowest risk. And while all of these firms assert failure to address climate risk as an investment risk, it is not clear that today’s retirees are at risk if the temperature is two degrees hotter in 2100.
ISS is at the meeting because they advise Texas on how to vote on the proxy shares the state maintains responsibility for. In some cases, ISS may be automatically voting for the funds. The committee wants to ensure its proxy votes are not being used to pass proposals that ultimately damage the economy or reputation of Texas. Every year thousands of shareholder proposals are submitted, and thanks to the SEC under the Biden administration, they are no longer required to relate to business operations.
There are proposal votes on equity audits, funding abortion travel, climate reporting, and dozens of other social and political issues. As State Financial Officers Foundation Chairman and Louisiana State Treasurer John Schroder has pointed out, ESG investing allows companies like BlackRock to bypass the legislative process and push political agendas through corporate decision-making without being accountable to voters. Derek Kreifels, CEO of the State Financial Officers Foundation, has made a similar observation. “Ultimately, ESGs will encompass everything the Left can’t get done through the legislative process or the courts,” he warned.
Not in Texas. Senator Hughes says the firms appear to provide an account to the people of Texas. “While each firm has produced documents, some have provided more than others. BlackRock, in particular, has refused to provide documents it considers internal or confidential,” he explained. “Accordingly, we have issued a subpoena to BlackRock for the production of additional documents the committee needs to complete its work. We will not allow these firms to continue to use Texans’ money to force a narrow political agenda. They have a legal duty to put their investors’ interests first, and we intend to make sure they do.”