Most big Wall Street firms passed a test for business as usual in Texas last week when state Comptroller Glenn Hegar kept all but BlackRock Inc. off a list of companies whose stance on boycotting oil and gas stocks could trigger divestment by public agencies.

But top banks like Wells Fargo and JPMorgan Chase & Co may not get so lucky next time as politicians in other conservative states weigh how to treat companies they say have let progressive, or "woke", values get in the way of financial decisions. Many investors and executives worry they are being forced to pick sides in a culture war.[L1N2Z93BY]

Under a new Texas law finalized last year, state agencies must divest from financial companies identified by Hegar as boycotting energy stocks, or explain why they are continuing those relationships. In practice, the law could mean the loss of pension-management contracts.

Much of Wall Street has adopted new environmental, social and governance (ESG) criteria for some companies whose shares they hold as investors put more cash into sustainable funds.[L1N2SM2EH]

The trend has pleased officials investing money in Democratic-led states but rankled Republican leaders in other places like Texas and West Virginia where fossil fuel companies are big employers.[L1N2Z927V]

Wall Street banks fielded queries from Hegar earlier this year over how their stance on climate change influences their lending decisions. But the list ultimately focused mainly on European firms that are not among top lenders to the fossil fuel industry.

Hegar did list many individual funds including from a wide range of U.S. sponsors, but their parent companies were not listed and so remain free to continue doing business in the Lone Star State.

"Some of Wall Street might take this as a win because they weren't listed at the entity level," said Clifford Chance attorney Vadim Avdeychik, who advises asset managers. "I think those asset managers would be relieved."

Hegar's listing of BlackRock sets the stage for more political pressure on the $8.5 trillion asset manager although it remains a major investor in top oil, gas and coal companies. Its CEO Laurence Fink is well-known for annual letters to CEOs stressing themes like climate change and has drawn attacks from conservatives.

BlackRock Chief Client Officer Mark McCombe said the company will work to leave the list and that clauses within the new law should allow it to keep current business in the state.

Other Wall Street giants could also face scrutiny, said Michael Rosen, chief investment officer for Angeles Investments.

"You made your point with attacking BlackRock and the European firms, so then who is the next bogeyman you have to go after?"

This year there are around 44 bills or new laws in 17 conservative-led states that would penalize corporations for ESG factors or other social policies, up sharply from roughly a dozen such measures last year, Reuters reported last month.[L4N2YE28B]

One big U.S. bank executive, speaking on the condition of anonymity, said he was not optimistic that other Republican-led states would go so easy on Wall Street, since state laws differ and such decisions seem political rather than technical.

Last month, West Virginia banned JPMorgan and Wells Fargo, among others, from new state business for boycotting fossil-fuel companies, an allegation the banks deny. [L1N2Z927V]

"We believe that we're in compliance with all these laws, but how that's interpreted can be based on the political winds," said the executive.

'BREATHING DOCUMENT'

In an interview with Reuters, Hegar said his office screened the 10 companies listed on criteria such as pledges to investor groups to reduce emissions from portfolio companies. He did not go into details about the differences between listed and non-listed companies.

Hegar cautioned that the list could be updated quarterly and more companies could be added. "This is a living, breathing document that will be reviewed on a continuing basis," he said.

Texas agencies must now assess if they will divest from the listed firms, based on factors like fiduciary considerations. A representative for the $200 billion Teacher Retirement System, the largest public fund in Texas, said it is reviewing the list.

McCombe said BlackRock's listing could hurt pensioners and undercuts Texas' business-friendly message.

"When one company is singled out the impression it gives is, who is safe investing in Texas?" McCombe said.

Andrew Poreda, senior research analyst at Sage Advisory Services, a Texas-based investment manager, said other big U.S. financial companies were lucky to escape Hegar's list, as many also have taken steps to address climate change.

As the U.S. divides politically, it becomes more likely companies will be forced to pick as side, he said, which will disrupt their operations.

"We should find ways to cool things down," he added.

(Editing by Michelle Price and David Gregorio)