Texas May Offer Exit Path For Sanctioned Financial Firms

A Texas official has offered big financial companies a potential avenue to leave an energy sanctions list if they drop out of corporate groups aiming to limit global emissions, though attorneys were skeptical they would do so.

The concept is detailed on the website of Texas Comptroller Glenn Hegar, who in August listed BlackRock Inc and nine European banks as "boycotting" the energy industry under the terms of a new state law because of their environmental policies.

The listings may lead to lost business with state agencies and are part of broader Republican pressure against the growing use of environmental, social and governance (ESG) factors in investing.

A Nov. 18 update of a document on Hegar's website spells out that even though companies may own oil or coal stocks, the "boycott" designation may still legally apply.

The update also includes new details about steps companies can take to be removed from the list.

It now states "an entity that is no longer included on the Climate Action 100+ and Net Zero Banking Alliance/Net Zero Asset Managers Initiative would no longer meet the initial criteria for listing".

The Climate Action 100+ investor network aims to push heavy-emitting companies to clean up their operations.

Members of the Net Zero groups, part of a global finance effort to cut emissions chaired by U.N. climate envoy Mark Carney, pledge to cut greenhouse gas output tied to their financing. Critics say too much coordination raises antitrust concerns.

Hegar has previously said he would consider updates to the list, and BlackRock and others have said they would seek to leave it. Representatives for Hegar declined to discuss the status of specific companies. BlackRock did not immediately comment.

Josh Lichtenstein, a Ropes & Gray attorney who represents asset managers that have met with Hegar on the issue, said the new language seems to be offering an exit from the boycott list in exchange for withdrawal from the industry groups.

But it would be difficult for most big firms to drop out given how seriously many of their investors take climate concerns, Lichtenstein said. "My gut feel is it's unlikely," he said.

Mindy Lubber, chief executive of sustainability nonprofit Ceres and an organizer of groups targeted in Texas, said she agreed companies aren't likely to withdraw as they face growing pressure from investors to manage the impact of climate change on portfolios.

"All these players have a duty to examine risk," Lubber said.