Economy

Oklahoma ESG law gets Blackrock’s attention

May 11, 2023

Ray Carter

Under Oklahoma law, investment companies that politically boycott oil-and-gas investments are now prohibited from receiving state contracts to manage hundreds of millions of dollars in state pension funds.

That has grabbed the attention of one of the companies barred from handling those funds.

This week, officials with Blackrock, Inc., met with Gov. Kevin Stitt to plead their case.

“We had a good conversation,” Stitt said. “Blackrock doesn’t want to turn into the next Bud Light, that’s for sure, so they’re traveling the country and (are) very concerned when they show up on lists.”

House Bill 2034, which created the “Energy Discrimination Elimination Act of 2022,” required the office of the state treasurer to conduct a review of investment firms to identify those that boycott investments in oil-and-gas companies regardless of the impact on investment returns.

In recent years, some investment firms have adopted “environmental, social, and governance” (ESG) policies that prioritize political activism over returns when making investment decisions. A key plank of ESG policies is an effort to deny oil-and-gas firms access to financial capital in the name of combating alleged manmade climate change. Broadly understood, the goal of ESG policies is to force the closure of more companies involved in U.S. oil-and-gas production.

Oklahoma is one of several states that have now banned ESG proponents from handling state pension funds.

Earlier this month, State Treasurer Todd Russ released a list of companies that can no longer be involved in the management or investment of state pension funds. Russ’ office received responses from nearly 160 financial institutions. Only 13 were found to engage in illegal discrimination as defined by HB 2034. Blackrock was one of the 13.

“The energy sector is crucial to Oklahoma’s economy, providing jobs for our residents and helping drive economic growth,” Russ said. “It is essential for us to work with financial institutions that are focused on free-market principles and not beholden to social goals that override their fiduciary duties.”

State Rep. Mark McBride, a Moore Republican who authored the law, welcomed its implementation when the list of banned institutions was released.

“This legislation ultimately protects all Oklahomans from the overreach of companies that think they can govern our population through the use of political environmentalism,” McBride said. “Fossil fuels such as oil and gas are a major contributor to the livelihood of many Oklahomans as well as our overall economy. This critical industry employees thousands of Oklahomans and adds tremendously to our tax base. We must protect our assets as a state.”

According to the Oklahoma Energy Resources Board, the total economic impact of oil and gas and component industries in the state in 2022 was $64.9 billion, 27 percent of the state’s total economic activity. This included 198,965 direct or supporting jobs and $23.7 billion in salaries and wages.

ESG policies not only try to destroy oil-and-gas jobs in Oklahoma and other states, but also can deprive retirees of pension stability.

A number of studies have shown that ESG investing policies have worse rates of return than what occurs when companies focus on growth potential. For example, a study by UCLA and New York University found that over five years ESG funds underperformed the broader market, averaging a 6.3 percent return compared to 8.9 percent return respectively. Additionally, in comparison to other investment plans, ESG investors generally end up paying higher costs for worse performance.

“Our pension plans, my job is to make sure that we invest those dollars for a return and we protect our police pensions, our teacher pensions,” Stitt said. “And when we think people aren’t doing that, we’re going to have some conversations with them.”

Blackrock’s website still prominently features an “ESG Integration Statement” first adopted in July 2018 and revised in March 2023.

The governor noted that Blackrock and other companies can take steps to be removed from the state’s blacklist by reforming their practices to comply with Oklahoma’s anti-discrimination law.

“It’s really simple,” Stitt said. “What we said is, ‘As soon as you stop attacking the oil-and-gas industry, as soon as you stop pushing a political agenda with our pension funds, we’re happy to do business with you.’”