May 26, 2021 - SIDLEY
Samuel Boxerman and Allen S. Braddock
Earlier in May, the Texas Legislature passed a bill (SB 13) that would prevent Texas from investing in environmental, social, and governance (ESG) financial products that boycott Texas energy companies. If signed into law by Republican Gov. Greg Abbott, SB 13 would require Texas’ public pension funds to “sell, redeem, divest, or withdraw all publicly traded securities of [any] financial company …” that “boycott[s] energy companies.” The bill defines “boycott[s] energy companies” as “refusing to deal with, terminating business activities with, or otherwise taking any action that is, solely or primarily, intended to penalize, inflict economic harm on, or limit commercial relations with a company because the company: engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy and does not commit or pledge to meet environmental standards beyond applicable federal and state law; or does business with a company described [above].”
The bill would push back against recent ESG initiatives undertaken by Wall Street investment funds and would affect the state’s six pension funds. These include the Employees Retirement System and the Teacher Retirement System of Texas, which manage over $200 billion. The bill does provide an exemption for the state pension funds from having to divest “indirect holdings in actively or passively managed investment funds or private equity funds” or where divestiture would be “inconsistent with its fiduciary responsibility ….”
Overall, if enacted, the bill would be one of the first state-level pushbacks against recent ESG developments on Wall Street.