(Reuters) A Texas school fund told BlackRock it was terminating its contract to manage around $8.5 billion of state money, accusing the investment giant of boycotting fossil fuel energy producers, who represent a large part of the state's industry.
BlackRock has denied it is engaged in any boycott, saying the money pulled is a tiny sliver of the $10 trillion in assets that it manages.
The move by the Texas Permanent School Fund, however, highlights how BlackRock and other asset managers continue to attract controversy in some Republican-run states over environmental, social and corporate governance (ESG) investing.
Texas State Board of Education Chair Aaron Kinsey, who administers the fund, said its relationship with BlackRock breached state law against investing with companies accused of boycotting energy companies.
Kinsey told Reuters that the fund was complying with a 2021 Texas law obliging state agencies to divest from fund managers like BlackRock that shed investments to reduce greenhouse gas emissions.
He added the fund receives about $1 billion a year from Texas's General Land Office, which manages 13 million acres-worth of rights to land and minerals.
"That money originates from the oil and gas industry primarily... if there's no income, no billion dollars a year from oil and gas, that's a problem for our fund, obviously an existential long-term risk," he said.
A few illiquid investments with BlackRock remain in the schools fund's portfolio, but these will roll off over time, Kinsey added.
BlackRock called the move arbitrary and said it ignores the private equity firm's $120 billion investment in Texas public energy companies. "The decision jeopardizes Texas schools and the families who have benefited from BlackRock's consistent long-term outperformance," BlackRock said.
CEO Larry Fink said last year BlackRock had lost around $4 billion as a result of the political backlash, and this was dwarfed by net inflows to BlackRock.
Fink has since said he would stop using the term "ESG", and hosted a summit with state officials in Houston last month focused on investing in the state's infrastructure.
