Proposed legislation in Texas aimed at prohibiting ESG (Environmental, Social, and Governance) investing in the state’s public retirement systems could potentially cost billions in lost returns, according to estimates from retirement system managers.
Senate Bill 1446, introduced by Senator Bryan Hughes, seeks to prevent investment managers and proxy advisors from considering any factors beyond what is legally required, particularly those that further social, political, or ideological interests.
This bill is the latest in a series of anti-ESG measures in Republican-led states, with Texas being notably active in this movement. Previous actions in Texas have included potential divestment from asset managers accused of “boycotting” energy companies and holding hearings scrutinizing the ESG practices of investment giants like BlackRock.
At a Texas Senate State Affairs Committee hearing, Amy Bishop, Executive Director of the Texas County & District Retirement System (TCDRS), which manages around $45 billion in assets, warned that the proposed legislation could severely impact the pension system’s “ability to maximize our returns and have financial impact on our employers.”
Bishop stated that the bill might force TCDRS to disengage from top investment managers, potentially costing the system over $6 billion in lost returns over the next decade and doubling employer costs.
Despite declaring that TCDRS “has never had an ESG policy,” and does not intend to have one, Bishop said that the bill “would keep us from partnering with some of the best investment managers in the world.” Bishop added:
“If we had to adjust our asset allocation, we estimated it could cost us over $6 billion over the next 10 years. And this would cause our employers cost to more than double.”
Texas is not alone in facing backlash over anti-ESG proposals. Similar legislation in Kansas and Indiana has drawn concerns about significant financial losses, and some measures have already been defeated in other states due to fears of impairing investment capabilities and fiduciary responsibilities. Despite these concerns, Senator Hughes maintained that while TCDRS does not currently practice ESG investing, the bill would ensure that they do not engage with managers who do.
