On August 24, 2022, the Comptroller of Texas released a list of ten financial companies (only one of which is based in the United States) and approximately three hundred and fifty funds which, under Texas law, all governmental entities of State (for example, the various Texas pension funds) must now divest. This action stems directly from the law recently passed in Texas, which prohibits Texas government entities from dealing with financial companies that “refuse[e] treat. . . company[ies] because society. . . engages in the exploration, production, use, transportation, sale, or manufacture of energy from fossil fuels.” In other words, if Texas decides that a financial company refuses to engage in the oil and gas sector, then the Texas state government will ban business dealings with that financial company – a variant of a reverse boycott.

This action is just the latest salvo in ongoing efforts by fossil fuel-focused states (e.g., West Virginia, Oklahoma, Texas) to combat the growing attention of investors and financial firms on the transition from fossil fuels to clean energy. These states are trying to exert economic pressure to slow down, or even stop, the actions taken by financial companies to withdraw their support for the fossil fuel industry. Indeed, last month, the West Virginia state treasurer announced a boycott of five financial companies for limiting coal investments. (It’s also worth noting that Texas and West Virginia identified largely separate business lists – only one investment firm appears on both lists.)

Although expected, this action by Texas could lead to a growing separation in the financial world between companies that want to do business with fossil fuel companies and those that do not. Such a bifurcation in the economy, if it occurred, would likely impose increased costs on entities on both sides of this environmental and energy divide.