(Bloomberg) -- Texas’s decision on Tuesday to divest $8.5 billion from BlackRock Inc. — citing the investment company’s fossil fuel policies  — drew a sharp rebuke from the world’s largest asset manager, which said it would hurt schools in the state financially.

Aaron Kinsey, the Republican chairman of Texas State Board of Education, said that the $53 billion Texas Permanent School Fund had delivered an official notice to BlackRock “terminating its financial management of approximately $8.5 billion in Texas’ assets.”

Kinsey said that the leadership of the fund decided to do so in order to comply with a 2021 law that restricts investments with companies that engage in so-called boycotts of the fossil fuels industry. BlackRock is on a list of companies that state Comptroller Glenn Hegar considers to engage in such a boycott. The Texas State Board of Education directs the investment of the Permanent School Fund, according to its website.

Read more: Why Texas Is Banning Banks Over Their ESG Policies: QuickTake

“Today’s unilateral and arbitrary decision by Board of Education Chair Aaron Kinsey jeopardizes Texas schools and the families who have benefited from BlackRock’s consistent long-term outperformance for the Texas Permanent School Fund,” a BlackRock spokesperson said in an emailed statement. “The decision ignores our $120 billion investment in Texas public energy companies and defies expert advice. As a fiduciary, politics should never outweigh performance, especially for taxpayers.”

 

BlackRock has always maintained it does not engage in any boycott. In February, Texas Lieutenant Governor Dan Patrick, a Republican, took the stage with BlackRock Chief Executive Officer Larry Fink at an industry event in Houston. That led to speculation that the state’s tensions with BlackRock may have cooled. But this latest announcement shows the state’s fight with BlackRock isn’t going away anytime soon. 

Read more: Texas Lauds BlackRock’s ‘King of Wall Street’ in Change of Tune

A spokesperson for the Permanent School Fund did not respond to a request for comment. Created in 1845, the fund helps finance schools in Texas. 

Holland Timmins, the former chief executive officer of the school fund, said in a 2023 board meeting that an international equity fund run by BlackRock offered an attractive fee and strong performance. He noted at the time that school fund had already moved out of a cash fund offered by BlackRock because there were strong alternatives offered.

Kinsey is the chief executive officer of American Patrols, an aviation oilfield services company in Midland, according to a biography on the state BOE website.

“Today represents a major step forward for the Texas PSF and our state as a whole,” Kinsey said in the statement. “The PSF will not stand idle as our financial future is attacked by Wall Street. This bold action helps ensure our PSF remains in fact permanent and will continue to support bright futures and opportunities for generations of Texas students.”

(Updates to add response from BlackRock)

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