Is Texas 'closed for business'? National group says state's anti-ESG laws damage economy

A national organization that defends the rights of corporations to adopt internal governance policies believed to be socially responsible is launching a six-figure advertising campaign in Texas to push back against a 2021 state law that forbids state and local governments from doing business with such companies.

Unlocking America's Future began running digital ads over the weekend warning Texans that rules targeting companies with policies known as ESG — for environmental, social and governance — have cost the state nearly $700 million in lost economic activity and have forced leading financial firms to quit doing business in Texas.

"Texas has been over the past decade the epicenter of the kind extreme laws that we're seeing go through other statehouses that directly benefit donors at the expense of their constituents," Unlocking America's Future spokesman Kyle Herrig told the American-Statesman.

Since the law that prohibits state and local government entities from doing business with firms deemed to be hostile to the Texas oil and gas sectors and to the firearms industry took effect, such financial powerhouses as Citigroup and Barclays have closed shop in Texas. In March, State Board of Education Chairman Aaron Kinsey directed the state's Permanent School Fund to pull its $8.5 billion investment from the asset-management giant BlackRock after he said the company's ESG policies are "destructive" to oil and gas interests.

BlackRock, however, "holds more than $320 billion in global energy investments, including approximately $120 billion in Texas-based, publicly traded energy companies," the company's Vice Chairman Mark McCombe told Kinsey in a letter. "We are also significant investors in private energy infrastructure throughout Texas."

Is Texas 'closed for business'?

Such moves in a state that prides itself as being welcoming to companies seeking to relocate or expand their operations is sending out a signal saying that "Texas is closed for business," Herrig said.

More: Citing ESG policies, Texas Permanent School Fund pulls $8.5B investment from BlackRock

Herrig said Unlocking America's Future is also committed to protecting the rights of LGBTQ+ Texans and supports reproductive choice.

State leaders have pushed back with force at suggestions that the laws are undercutting Texas' decadeslong reputation for cultivating and nurturing economic expansion. In the same month that the Texas Association of Business Chambers of Commerce Foundation released a study showing that Texas was putting at risk hundreds of millions in lost earning power, tax collections and economic activity, Gov. Greg Abbott on March 1 made a show of Texas being named the nation's most business-friendly state for the 12th consecutive year by Site Selection Magazine, a real estate and economic development publication.

“By cutting red tape and burdensome regulations, and making strategic, continuing investments in infrastructure, education, and workforce development, Texas offers businesses the freedom to grow and Texans the tools to prosper," Abbott said at a celebration at the Governor's Mansion attended by several business leaders and elected officials.

Unlocking America's Future, however, says on its website that it is fighting back against the red tape states like Texas are putting up in anti-ESG policies, which it says attack American businesses and "the very freedom to invest in clean energy and sustainable industry."

"Over the last year, extremists in Washington and in state capitals have banded together with special interests and corporate polluters to intimidate, distort, and, in many states, ban responsible investing. The result: long-term damage to the U.S. economy," the group says.

Is ESG good for business?

Herrig said that numerous business leaders are backing the group's effort to highlight the downside of targeting companies based on ESG policies. He declined to provide names of individual supporters or of those who have donated money to the nonprofit that is classified by the Internal Revenue Service as a "social welfare" organization.

More: A Texas law geared to help energy, firearms industries comes at multimillion-dollar cost

"Research has shown that companies with more inclusive cultures are twice as likely to meet or exceed financial targets and eight times more likely to achieve better business outcomes as well," he said.

According to an article published Tuesday in Governing Magazine, Texas is among 20 states that have enacted legislation targeting business with ESG policies. All are led by Republicans. Texas' disinvestment of BlackRock is the largest of its kind in the nation in anti-ESG states, the magazine reported.

Only a handful of Democratic-run states have proposed or passed measures to protect or mandate ESG policies, the article said.

Even though several additional states are considering anti-ESG legislation, a poll released this month by global financial services company Morgan Stanley found that more than half of individual investors plan to increase what they invest in companies with ESG policies. The poll also found that 7 in 10 investors "believe strong ESG practices can lead to higher returns."

“Nearly 80% of individual investors believe that it is possible to balance market rate financial returns with a focus on sustainability,” Jessica Alsford, Morgan Stanley’s chief sustainability officer, said in the news release that announced the poll's findings. “These investors express a desire for their investments to advance positive environmental and social impact, creating opportunities for finance professionals to meet these needs.”

Lt. Gov. Dan Patrick, who in presiding over the Texas Senate was instrumental in guiding the anti-ESG measures through the Legislature, has said he stands firmly in support of the law.

“My stance on Environmental, Social, Governance (ESG) and Diversity, Equity, and Inclusion (DEI) policies have not and will not change," he said in a statement early this year. "They should not be part of any funding agreement in Texas."

This article originally appeared on Austin American-Statesman: Targeting ESG business policies is bad for Texas, advocacy group says