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Texas targets financial firms that practice climate-conscious investing

RACHEL MARTIN, HOST:

State officials in Texas are working to pull money away from companies accused of boycotting the oil and gas industry. It's part of a trend in some red states to target financial firms that practice climate-conscious investing. Mose Buchele reports from member station KUT in Austin.

MOSE BUCHELE, BYLINE: Last spring when state politicians proposed the idea, it seemed simple. Texas public money, they said, should not go to groups that withhold business from oil and gas, one of Texas' biggest industries. Here's how Republican State Representative Phil King put it in a committee hearing.

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PHIL KING: This bill sends a strong message to both Washington and Wall Street that if you boycott Texas energy, then Texas will boycott you.

BUCHELE: But to figure out which financial firms to boycott, it helps to have a list. So after the bill passed, the Texas Comptroller's Office started writing one up. Here's where things stopped being so simple.

SHERRI GREENBERG: This is not obvious. You're really going to have to do a lot of research.

BUCHELE: Sherri Greenberg is a former Democratic state representative who used to help oversee the state's pension fund. She says one example of how tricky the law is is that not only do financial firms need to be vetted but so do the investment plans they offer.

GREENBERG: Take Wells Fargo, for instance. If they have any mutual funds or exchange traded funds in their portfolios that prohibit or limit investment in fossil fuels, then that is problematic.

BUCHELE: The task of finding who qualified for the boycott proved so complicated that the comptroller's office hired a consulting firm called MSCI to get a list of companies taking aggressive climate action. But as state officials negotiated a price, they realized that they could be breaking the law by trying to implement it. That's because MSCI itself has aggressive climate goals that may put it on the boycott list. Emails obtained by the investigative reporting group Floodlight show how Texas state lawyers and MSCI had to come up with a workaround to the law to work together. I asked Greenberg what that says about the new law.

GREENBERG: It says it's difficult to implement and hard to research.

BUCHELE: The comptroller's office agrees. In an email, it wrote, this process has proven challenging given the scope of firms that we've been tasked with analyzing. Texas comptroller Glenn Hegar also accuses firms of talking out of both sides of their mouths, telling both climate-conscious investors and Texas state officials what they want to hear. But critics say Texas is also trying to have it both ways, that the new law has key loopholes and exceptions. Rob Schuwerk leads the North American office of Carbon Tracker, a group that advocates for moving away from fossil fuels.

ROB SCHUWERK: When you look at the statute itself, it's got an exception for, for example, ordinary business decisions.

BUCHELE: What that means is if a company decides not to invest in oil because it thinks it will make more money elsewhere, then it won't be targeted by the law.

SCHUWERK: It's obviously intended to scare asset owners and asset managers into not divesting. But I think if you were to divest because of financial reasons, that's an ordinary business decision for an asset manager or an asset owner.

BUCHELE: But those loopholes don't mean the law won't have an impact. Similar rules have been proposed or adopted in at least seven other Republican-led states.

LESLIE SAMUELRICH: You could see how it could have a chilling effect, and some investment firms might be worried about it.

BUCHELE: Leslie Samuelrich is the president of Green Century Capital Management, a group that helps run fossil-free mutual funds. On the day she spoke with NPR, she had just received a letter from the Texas Comptroller's Office full of questions about her firm's investment practices, one of hundreds the agency recently sent out. That's just the kind of attention most businesses would simply rather avoid, says David Spence, a professor of business and regulation at UT Austin. He says a lot of financial firms are now trying to please both red-state politicians and meet demands from others, including clients, the federal government and international community to be proactive on climate.

DAVID SPENCE: They have to figure out how to walk a tightrope that may even be disappearing, you know, that may be impossible to thread that needle anymore.

BUCHELE: One option, of course, is to simply stop trying to thread that needle. Samuelrich says fossil-free investing is not going anywhere. And if her company ends up on a Texas boycott list, that might just attract more business her way. For NPR News, I'm Mose Buchele in Austin. Transcript provided by NPR, Copyright NPR.