Dive Brief:

• Texas has added HSBC to its list of financial institutions that “boycott the oil and gas industry,” the state’s comptroller, Glenn Hegar, said in a release Monday. The move is meant to spur state pension funds to divest their holdings in listed companies.
• HSBC in December said it would no longer finance new oil and gas fields or related infrastructure. However, the bank added it would still provide corporate finance and advisory services to energy sector clients, as long as those companies have transition plans that are consistent with the bank’s 2030 targets for emissions financing and its commitment to net zero by 2050.
• Hegar called HSBC’s updated energy policy “a prime example of a broader movement in the financial sector to push a social agenda and prioritize political goals over the economic health of their clients.”

Dive Insight:

Under a law passed in 2021, state pension funds and other governmental entities have 30 days from the time a company is placed on a divestment list to report their direct and indirect holdings. Listed companies, meanwhile, have 90 days to convince Texas they don’t boycott fossil fuels. 

HSBC “seeks a balanced approach in the implementation of its net zero commitment, with the primary aim being to support our customers in the transition from a high-carbon to a low-carbon economy,” Matt Ward, head of communications for HSBC USA, told Bloomberg in an emailed comment.

The bank will still lend and provide capital markets support to energy-based customers that take an “active role” in the transition to cleaner fuels, Ward added. 

The addition of HSBC to Texas’ divestment list is “significant given [the company’s] status as Europe’s largest bank, but it should not be surprising,” Hegar said. 

Indeed, the list, first published in August, contains several European banking titans, including BNP Paribas, UBS and Credit Suisse. U.S. banks, however, are notably absent — although JPMorgan Chase, Wells Fargo and Goldman Sachs reportedly were included on earlier drafts of the list. 

HSBC becomes the 11th company on Texas’ divestment list. Asset manager BlackRock stands as the only U.S.-based firm on the list, which the comptroller’s office can update quarterly. 

“Recent events in the global financial sector provide a stark warning about what can happen when firms lose sight of their fiduciary responsibilities,” Hegar said in a statement Monday. “From ratings firms to regulators, significant segments of the sector have lost focus on fundamentals in the rush to prioritize the environmental, social and corporate governance movement and force an intellectually dishonest narrative about the so-called energy transition.”

Hegar is not the only government official (or Texas Republican) to infer that, ahead of the failures of Silicon Valley Bank and Signature Bank, regulators prioritized ESG efforts over more basic elements of financial health.

“Instead of fulfilling its statutory mandate to supervise SVB, the SF Fed has been distracted with engaging in politically charged research and advocacy on environmental, social and governance, and diversity, equity and inclusion topics, like global warming and racial justice,” Sen. Ted Cruz wrote Thursday in a letter to Federal Reserve Bank of San Francisco President Mary Daly.

Texas has served as ground zero, at the state level, for the ideological battle over ESG. State officials held a hearing in December, where executives from BlackRock and State Street Global Advisors testified that their companies don’t discriminate against certain segments of the energy industry.

“We have one bias: to get the best risk-adjusted returns for our clients,” Dalia Blass, BlackRock’s head of external affairs, told the Texas Senate Committee on State Affairs.

Other states have begun penalizing financial firms they see as boycotting fossil fuels. Kentucky, in January, placed JPMorgan Chase, Citi, BlackRock and eight other financial institutions on a divestment list similar to Texas’. West Virginia last July said it would stop awarding new state business to BlackRock, JPMorgan, Wells Fargo, Goldman Sachs and Morgan Stanley over the companies’ decisions to cut back on financing to coal companies.

Fourteen Republican state attorneys general launched investigations in October into whether the six largest U.S. banks, through their ESG practices, were blocking credit to oil companies.