Economic Substance behind Texas Political Anti-ESG Sanctions

74 Pages Posted: 16 Mar 2023 Last revised: 8 Mar 2024

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Anup Srivastava

University of Calgary - Haskayne School of Business

Rong Zhao

University of Calgary

Date Written: March 5, 2024

Abstract

In September 2021, the Texas legislature directed its state agencies to divest from investment companies that allegedly “boycott” energy stocks and announced a specific list of banned funds. We find that banned funds carry titles suggesting an environmental, social, and governance (ESG) focus. However, banned funds are largely indexers with a tilt slightly away from energy stocks and slightly toward technology stocks, compared with control funds. Banned funds earn higher risk-adjusted returns (alphas) before the ban, than control funds, and lower alphas after, but the differences are not economically significant. Red and blue states’ pension funds largely follow market trends and have similar exposures to energy stocks, even though their politicians proclaim pro- and anti-fossil fuel stances, respectively.

Keywords: ESG; Politics; Greenwashing; Texas; BlackRock

JEL Classification: M41; M14; H75

Suggested Citation

Rajgopal, Shivaram and Srivastava, Anup and Zhao, Rong, Economic Substance behind Texas Political Anti-ESG Sanctions (March 5, 2024). Available at SSRN: https://ssrn.com/abstract=4386268 or http://dx.doi.org/10.2139/ssrn.4386268

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Anup Srivastava (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Rong Zhao

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-2568 (Phone)
403-210-2217 (Fax)

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