AUSTIN - Texas Attorney General Ken Paxton could be planning legal action against financial institutions that rely on diversity, equity and inclusion (DEI) hiring policies while also following climate-activist goals in their investments.
Last week, he and 10 other state attorneys general warned BlackRock, Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley that they could face litigation if they continue their DEI practices and environmental, social and governance (ESG) commitments.
Paxton has already sued BlackRock, alleging it purchased significant stockholdings in coal companies that allowed it to push them toward green energy goals. Those who invested in non-ESG funds ended up with stocks in companies still subjected to ESG strategies, he and a group of AGs alleged.
Texas law prohibits governmental entities from entering into contracts with companies that boycott the oil and gas industries, many of which took part in the Net-Zero Banking Alliance. Wells Fargo and all other major U.S. banks have withdrawn from the NZBA.
The Jan. 27 letter targets financial asset managers Paxton says appear to be acting contrarily to their clients' best interests.
"(C)oncerns have arisen that you may have violated your fiduciary duties by managing client assets to not only advance race- and sex-based quotas but also satisfy climate commitments rather than maximize financial returns for your clients," the letter says.
"If so, it needs to stop, and the law must be followed."
He "applauded" the firms for leaving the NZAM, which has suspended operations. But he says some of them are still associated with climate groups and have made public statements of continued commitment to net-zero goals.
"These actions raise serious concerns as to whether your exodus (from NZAM) is an optics-only effort."
As to DEI, companies are already in the crosshairs following President Donald Trump's flurry of executive orders. One of those terminates DEI preferences when the federal government hires contractors, or when it hires its own employees.
BlackRock, Paxton says, has allegedly placed race- and sex-based quotas in contracts and executive compensation agreements. An alleged amendment to a revolving-credit contract with major banks helps BlackRock save millions of dollars if it meets DEI quotas.
Employees are pressured to hit these figures by being judged in their performance reviews on their DEI progress, plus year-end bonuses partially depends on meeting DEI goals, Paxton says.
The other targets of the letter also previously announced DEI hiring goals, like JPMorgan Chase's target of hiring 4,000 Black students by 2024.
"None of this has anything to do with meeting fiduciary obligations," the letter says.
Voting for board members based on DEI goals violates Texas law, the letter says.
"As one example, rather than using its clients' assets to focus solely on financial returns, BlackRock leverages those assets in proxy votes and shareholder engagements to push quotas across society more broadly and especially on the boards of the portfolio companies in which BlackRock is an influential shareholder," it adds.
Joining Paxton in the letter are these AGs: Steve Marshall of Alabama, Austin Knudsen of Montana, Chris Carr of Georgia, Mike Hilgers of Nebraska, Raul Labrador of Idaho, Alan Wilson of South Carolina, Todd Rokita of Indiana, Derek Brown of Utah, Brenna Bird of Iowa and Jason Miyares of Virginia.
The letter demands information from the firms before the AGs possibly pursue legal action.