Texas Attorney General Ken Paxton has declared that the investment firm Barclays is no longer eligible to participate in the Texas bond market. This decision follows Barclays' refusal to respond to inquiries from the Texas attorney general's office regarding its commitment to "net zero" carbon emissions.
The state of Texas, along with many local governments, special districts, and school districts frequently issue bonds as a means of borrowing money. Private firms are involved in this process, earning profits either by underwriting these bonds or purchasing them outright. A letter from the attorney general's office clarified that Texas law forbids governmental entities from entering into contracts with companies that "boycott energy companies."
To ensure compliance with this law, the Texas Office of Attorney General evaluates the eligibility of companies wishing to participate in the Texas bond market. One factor triggering a review is whether a company is associated with the Net Zero Alliance. As stated on its website, the Net Zero Alliance describes itself as "a group of leading global banks committed to financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050." Affiliation with the Net Zero Alliance could suggest that a company might be classified as a fossil fuel boycotter under Texas law.
According to both Comptroller.Texas.Gov and an article penned by Moise Julot, The Net Zero Alliance forms part of the global ESG movement. This movement prioritizes certain environmental, social and governance policies over shareholder and investor interests. Glenn Hegar, Texas Comptroller who is mandated by Texas law to identify financial firms boycotting specific energy companies explained: "The ESG movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy." Julot's article titled "The ABCs of ESG Investing" was published in Economy.
Part of the attorney general's investigation into companies associated with The Net Zero Alliance involves determining whether they should be classified as entities that boycott energy companies, as stated in the letter. At present, the attorney general's office is examining several companies under this statute, including Bank of America, J.P. Morgan Chase, LLC Royal Bank of Canada State, and Wells Fargo Bank.
During its review of Barclays, the attorney general's office contacted the company to inquire about its ESG commitments. However, according to a press release from the attorney general's office, "Barclays elected not to respond to the questions and acknowledged that by doing so it would likely forfeit its ability to contract with Texas governmental entities." Consequently, the office issued a letter to all attorneys assisting with bond issuance by Texas governmental entities stating: "until further notice, we will not approve any public security issued on or after today’s date in which Barclays purchases or underwrites the public security or is otherwise a party to a covered contract relating to the public security."
