Texas laws aim to protect oil industry, but they threaten state pensions, other funds

This year, the Texas Legislature passed laws prohibiting state agencies from contracting with or investing in companies that “boycott” fossil fuels. The bill, later signed into law, is seemingly a response to worries that investors may have or are considering divesting from oil and gas.

“If you boycott Texas energy, Texas will boycott you,” said the bill’s author, Sen. Brian Birdwell, R-Granbury.

The hard left has been targeting oil and gas companies for divestiture as a strategy for several years as part of their climate-change agenda.

While perhaps well-intentioned, the new state policy in response creates several unintentional problems. Policymakers are talking about the state’s long-term investments, including school funding and retirement accounts for teachers, county workers and emergency personnel — which amount to billions of dollars of investments.

When companies put politics ahead of wise investments, shareholders can “vote with their feet” and move their money elsewhere. Executives can be terminated. The same isn’t true for the state’s stakeholders. The state comptroller and the pension funds that he has a fiduciary responsibility to manage cannot chart a new investment strategy when it is written into law.

Competition and open markets benefit investors. That goes for Texas’ investments, too. The state’s financial officers, including Comptroller Glenn Hegar, have a solid track record of maximizing returns on taxpayer dollars, political ideologies aside.

The way that lawmakers drafted the new measures — such as Senate Bill 13 or its companion, SB19, which forces financial firms to do business with firearms-related entities — ties the hands of our state’s officials. Restricting their options invariably puts investees and even taxpayers at a disadvantage.

The state’s decisions to blacklist certain investors has already caused the largest U.S. bank to stop offering services to Texas cities and towns. J.P. Morgan, which underwrote $3.6 billion of municipal debt sales last year, announced it will no longer bid on public business in Texas because of SB19.

Senate Bill 13 leaves a lot of room for interpretation, which opens the door to politicization. The law tasks the comptroller with determining what, exactly, “boycotting” fossil fuels means.

Can a company be described as “boycotting” fossil fuels if it actually provides capital to or outright owns billions of dollars in fossil fuel companies? Is it best to focus on banks that may restrict capital to new fossil fuel related investments? Or should a financial institution have to hold onto existing portfolios of poorly performing energy stocks to do business in Texas?

While it is increasingly likely that Republicans will retake Congress, federal action on divestment appears unlikely. For Texas, this issue now rests on the shoulders of the comptroller to prudently interpret and apply the law. It is imperative that the state’s chief financial officer focus squarely on the intent of the law — to weed out firms that truly oppose the Texas’ oil and gas industries — and not apply it as a political prod to pick winners and losers.

Hegar’s first test may be with his determination on how broadly to interpret his requirements to develop a list. He would be wise to look very closely at actual harm being directed on the state’s fossil fuel related interests instead of broadly interpreting the law and developing a list that instead is intended to be used as a political cudgel to attack “woke Wall Street.”

I oppose divestment and support our oil and gas industry. There is a time and place for this debate, but Texas’ teachers, emergency workers and career employees should not be pawns in that political chess game.

Elected leaders should develop long-term strategies to protect our energy industries and allow decisions on energy sources to be based on market and economic variables, with appropriate consideration for environmental factors.

All “green” energy sources, except nuclear, rely on coal, oil or natural gas for back up, which highlights the need for a robust oil and gas sector in Texas now and in the future.