📈 Texas, BlackRock, and American Oil

Private Capital Insider: Weekend Edition

Author

Equifund: Weekend Edition
March 23, 2024

While everyone else is talking about the DWAC SPAC officially voting to acquire Trump’s Truth Social, Neuralink introducing the first person implanted with its brain-computer interface, and the weird drama surrounding the Princes of Wales – Kate Middleton…

Here’s the story you haven’t been hearing much about…

As a quick disclaimer, we don’t take political sides in our editorial. Instead, we prefer to analyze Narratives, how they are evolving, and the impact these Narratives have on markets (and otherwise forming a new consensus around price).

So why should you care what’s happening in Texas if you don’t call the Lone Star State home? 

Because unlike Vegas, what happens in Texas tends to spread across the country… especially to other conservative states.

And this announcement – along with the increasing Anti-ESG sentiment, especially as it relates to the energy transition, in general – could set the stage for a new paradigm in the oil and gas markets.

That’s what we’re talking about in today’s issue of the Weekend Edition.

-Equifund Publishing

P.S. Interested in investing in oil and gas? Pytheas Energy – an AI powered, early-stage oil and gas producer operating in Texas – is raising capital on the Equifund Crowd Funding Portal. 

Texas Strikes Back, Pulls $8.5bn from BlackRock Over ESG Policies

Among the many, many, many strange things that have happened in Texas over the past 12 months… 

The decision to pull $8.5bn from BlackRock – arguably the global ambassador of “alarmingly large asset managers who probably have too much power and influence” – might become the tipping point of the “Anti- ESG / Anti-Woke” Narrative.

Chairman of the State Board of Education, Aaron Kinsey, made this statement today advising the public that the Texas Permanent School Fund (PSF), through his leadership, terminated a major investment with BlackRock. 

The PSF’s relationship with BlackRock was not in compliance with Texas Government Code Section 809, commonly referred to as Senate Bill 13, which prohibits state investment in companies like Blackrock that boycott energy companies.

BlackRock’s dominant and persistent leadership in the ESG movement immeasurably damages our state’s oil & gas economy and the very companies that generate revenues for our PSF

What kind of revenues are we talking about? The fossil fuel industry contributed about $26 billion in state and local taxes in 2023 — about $1.8 billion of which went into the fund.

Following the news, Wayne Cristian – commissioner of the Texas Railroad Commission, which regulates the Texas oil and gas industry – said:

Texas state leadership continues to land blows to BlackRock and woke financial corporations pushing a pro-ESG/anti-fossil fuel agenda!” 

Our great state should NOT be doing business with a financial institution that wants to end oil and gas, brainwash kids to hate fossil fuels, and jeopardize our energy freedom. 

As the 9th largest economy in the world with businesses regularly relocating headquarters to the Lone Star State, I’d suggest to BlackRock and other woke Wall Street firms to wake up and realize that fossil fuels aren’t the enemy that radical environmentalists have portrayed them to be. 

I want to give kudos to Chairman Kinsey, Tom Maynard, Julie Pickren and the other SBOE board members, who continue to defend the values and resources that make Texas, ‘Texas.’

Now, there’s a lot to unpack here in terms of why Texas pulled money from BlackRock…

But let’s start at the beginning of the Anti-ESG / Anti-Woke agenda.

Terms like “impact investing” – or the idea of investing for both financial returns and positive social or environmental impact – have been around for a while (especially in Europe)…

But the ESG “meme” in the investing world didn’t really exist until BlackRock CEO, Larry Fink, published his now infamous 2020 letter to CEOs, calling for a fundamental reshaping of finance.

Climate change has become a defining factor in companies’ long-term prospects. 

Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. 

But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.

Once this happened, the ESG feeding frenzy began.

In fact, according to a 2021 article by Bloomberg, ESG assets were on track to exceed $50 trillion by 2025 – more than a third of all global assets combined!

On the surface, it sounds like a win for the environment and a win for the people!

Unless, of course, you have an economy that is heavily dependent on oil and gas – the de facto boogey man of the ESG / climate change movement.

Who, pray tell, might have one of those? Texas, the second largest state by size (behind Alaska), second largest state by population (behind California), and the 9th largest economy in the world, with $2.3 trillion in annual GDP.

So, Texas being Texas, decides to respond to what they perceived as a highly “Anti-Texas” position and basically run a reverse boycott – if you’re going to be anti-Texas, then you’re not going to get to do business with Texas.

So, in 2021, Texas passed two laws – Senate Bill 13 and Senate Bill 19 – which restrict government contracts with companies that take what state officials regard as punitive stances toward the fossil fuels and firearm industries.

List of states that introduced bills either in support of or against integrating ESG principles into investment decisions in 2021

In 2022, several Republican-led states took steps to prohibit state investment funds from doing business with asset managers that use ESG principles.

This eventually led to a handful of states – Arizona, Arkansas, Florida, Louisiana, Missouri, South Carolina, and Utah – divesting ~$4bn in state assets from BlackRock’s funds.

But for BlackRock, who had nearly $8 trillion in assets under management, the $4bn was hardly a drop in the bucket.

However, it most certainly acted as the primary catalyst that reversed the massive inflows to ESG funds. 

ESG investments have lost their luster given high interest rates, political backlash, and greenwashing scrutiny. Source: Visual Capitalist

In September of 2022, BlackRock responded to a letter they received from 19 Republican State Attorneys General who accused BlackRock of putting its “climate agenda” ahead of clients, collaborating with climate activists, and boycotting energy companies.

In its letter, BlackRock says that the firm has never dictated specific emission targets to any company, and that it doesn’t coordinate its investment decisions or shareholder votes with others on climate issues, much as the attorneys general claimed. 

Far from boycotting, BlackRock says it has invested “hundreds of billions of dollars” in energy companies, which, strangely enough, is true. 

According to a January 2024 article in Bloomberg, 72 BlackRock funds on the prohibited list have invested more than $2 billion in the oil industry.

According to Mark McCombe, Vice Chairman at BlackRock:

Texas is an incredibly important market for BlackRock and our clients. We are helping millions of Texans invest and save for retirement. 

On behalf of our clients, we’ve invested more than $300 billion in Texas-based companies, infrastructure and municipalities, including $125 billion invested in the energy sector.

BlackRock – undeterred by the Texas boycott – continued to look for ways to build rapport with Republican officials. 

At a February summit, Fink said BlackRock could help Texas get $10 billion in private investment to strengthen its power grid, after bouts of extreme weather over the last few years, from heat waves to winter storms, left millions without electricity and heat.

Not a bad olive branch if you ask me.

So why the sudden divestment of capital from BlackRock?

It seems like the oil producing nations are calling BS on the energy transition.

For example, in 2023, the 28th annual climate change conference – the “Conference of the Parties” (or COP) – was held in the United Arab Emirates. 

And in case that seems like a kind of weird place to hold a climate change conference…

The president of COP28, Sultan Al Jaber, has claimed there is “no science” indicating that a phase-out of fossil fuels is needed to restrict global heating to 1.5C, the Guardian and the Centre for Climate Reporting can reveal.

Al Jaber went on to say:

Please help me, show me the roadmap for a phase-out of fossil fuel that will allow for sustainable socioeconomic development, unless you want to take the world back into caves.

I don’t think [you] will be able to help solve the climate problem by pointing fingers or contributing to the polarization and the divide that is already happening in the world. 

Show me the solutions. Stop the pointing of fingers. Stop it.

Oops.

This only got worse when Saudi Arabia Energy Minister, Prince Abdulaziz bin Salman, said the kingdom won’t agree to a text that calls for the phase down of fossil fuels.

I’m not naming names. But those countries who really believe in phasing out and phasing down hydrocarbons, you should come out and put together a plan on how in starting 1st of January 2024.

Don’t worry, there’s more.

On March 18th, 2024, Texas hosted the annual industry conference, Cera Week, in Houston, where they continued to denigrate the energy transition plans. 

Meg O’Neill, chief executive of Woodside Energy, said that the transition to clean energy cannot “happen at an unrealistic pace,” predicting that cleaner fuels could take up to 40 years to develop.

According to Amin Nasser, chief executive of Saudi Aramco:

We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions. 

We should ramp up our efforts to reduce carbon emissions, aggressively improve efficiency, and introduce lower carbon solutions.

Ladies and Gentlemen, many of us have been saying for a long time that the world has been trying to transition in fog, without a compass, on a road to nowhere. 

Consumers increasingly agree, as transition realities bite. 

They are demanding a transition that is affordable, reliable, and flexible, and that supports our climate ambitions.

So the question remains…

What happened at the conference that caused the Texas Permanent School Fund to notify BlackRock that they were divesting via a public press release? 

We can only speculate. 

But personally, my favorite conspiracy theory is this: Texas is getting ready to make good on its long-standing threat to secede from the Union.

Which brings us back to our routine coverage of “what’s going on with gold?”

Is Greg Abbot Preparing for Texit?

Voters in the Republican Party across Texas headed to the polls on Tuesday, March 5th, to weigh in on 13 propositions on the GOP ballot – all of which received majority YES votes. 

Most notably…

  • Proposition 7: The Texas Legislature should establish authority within the Texas State Comptroller’s office to administer access to gold and silver through the Texas Bullion Depository for use as legal tender.

For those who’ve been following our gold coverage, the reason we’re bringing this up should be rather obvious…

If the Lone Star State succeeds in the long-held sound money fantasy of returning to a pseudo gold standard – allowing all Texans to transact in gold/silver – it may potentially be the “Catalyst of the West” that drives investor interest.

But more than that, it could offer Texans a safeguard from the threats of inflation and tyranny.

According to Texas State Representative, Mark Dorazio, who urged Texans to vote YES on Proposition 7:

There are two developments, moving at a rapid pace right this moment, that aim to drastically change the global economy and commerce moving forward. 

The first is the BRICS nations working hard to move away from the US dollar and ultimately to topple it from its position as the global reserve currency. 

If that happens, it’s going to mean bad things for the dollar and higher inflation destroying the livelihood of our citizens.

The second is the coordinated efforts at the World Economic Forum and in many nations around the world—including the United States—to create central bank digital currencies and move to a cashless society. 

Let’s make no mistake, this is about control. Every transaction you make will be monitored. Every unit of currency is ultimately able to be controlled by computer code.

That protection of our citizens rights and the American Dream is what my legislation is really about. 

It does that by making gold and silver functional money that can be transacted with the convenience of a debit card.

This ballot proposition is important because it shows the underlying stable grassroots demand for the use of gold not only as an investment, but also as currency.

And it’s not just Texas taking steps to make use of precious metals as legal tender…

Lawmakers in Florida and Oklahoma have introduced bills into their respective state legislatures that would follow Texas by creating their own state-run depositories.

We’ve also seen a crop of states pass bills to eliminate capital gains taxes on the sale of gold and silver, treating the buying and selling of metals as an exchange of currency, not a profit/loss on a commodity.

Not to mention, on March 21st, Wisconsin became the 44th state to eliminate sales tax on the purchase of precious metals

According to Jp Cortez, executive director of the Sound Money Defense League:

As inflation ravages American families, Wisconsin has taken an important step toward remonetizing gold and silver, a proven inflation hedge and the only form of money mentioned in the U.S. Constitution.

At the time of writing, more than a dozen other states have introduced pro-sound money legislation in 2024 –  including Alaska, Indiana, Iowa, Georgia, Kansas, Kentucky, Missouri, Idaho, Arizona, Utah, New Hampshire, Oklahoma, Nebraska, Kansas, Vermont, and West Virginia.

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