Texas ramps up ESG pressure on Wall Street over DEI efforts

Texas is leading another offensive against financial firms' ESG efforts, with a fresh warning over possible violations linked to their efforts to improve racial and sex-based representation.

Texas Attorney General Ken Paxton, joined by nine other Republican-led states, has issued a letter to six major financial institutions over their diversity, equity, and inclusion (DEI) and environmental, social, and governance policies, suggesting these initiatives may violate state and federal laws.

The letter included a litany of questions addressed to each of the firms – which include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, Citigroup, and BlackRock – with a request to provide detailed responses within 45 days.

“You appear to have embraced race- and sex-based quotas and to have made business and investment decisions based not on maximizing shareholder and asset value, but in the furtherance of political agendas,” Paxton wrote.

By advancing “unlawful race- and sex-based quotas," he suggested the firms may have breached their fiduciary duties.

The letter also questioned the firms’ net zero emissions goals and engagement with environmental groups like Climate Action 100+, alleging potential violations of fiduciary and contractual obligations. Under pressure from Republican critics, a slew of Wall Street banks dropped out of the Net-Zero Banking Alliance earlier this month, shortly after which BlackRock departed from the similarly aligned Net-Zero Asset Managers collective.

In November, nearly a dozen Republican states sued BlackRock, State Street, and Vanguard in a Texas federal court over alleged abuses of their market influence to unlawfully push ESG objectives on energy companies.

“Unlawful race- and sex-based quotas and so-called ‘green energy’ schemes will not be allowed to stand,” Paxton declared in a statement Thursday afternoon. "Any institution found to be violating the law will be held accountable."

DEI and ESG strategies have been the subject of growing scrutiny from Republican-led states. Since 2021, Wall Street firms have announced ambitious DEI initiatives, including a JPMorgan pledge to hire 4,000 Black students by 2024, and Goldman Sachs' goal to allocate over $1 billion to diverse vendors. 

While Paxton and his peers argue such initiatives could conflict with anti-discrimination laws and fiduciary responsibilities, JPMorgan CEO Jamie Dimon and Goldman Sachs CEO David Solomon reaffirmed their commitment to DEI efforts this week, according to Bloomberg.

“We’re going to continue to reach out to the Black community, the Hispanic community, the LGBT community, the veterans community,” Dimon said during an interview with CNBC in Davos, Switzerland.