Texas

Title

Key Dates

Nature of
Action

ESG Category

Summary

Texas Permanent School Fund Corporation (Texas PSF) implements proxy voting directives focused on fiduciary responsibility, not political activism

■ Texas PSF has announced that it has implemented an“ESG skeptical” proxy voting matrix, which is offered through Institutional Shareholder Services in response to “widespread criticism” that ISS voting policies supported too many ESG-linked shareholder resolutions. The new Texas PSF proxy voting matrix will take effect immediately and will be used to cast votes on behalf of Texas PSF during the first half of 2024. According to Texas PSF, ISS will produce a report for the Texas PSF to allow for an annual review to ensure that proxy votes comply with the matrix.

Enforcement/Divestment

■ The Texas Permanent School Fund Corporation terminated its $8.5 billion contract with BlackRock, accusing the company of boycotting fossil fuel energy producers, which make up a large part of Texas's economy.

Texas AG Blocks Citigroup Participation in Domestic Bond Offerings

Adopted
1/19/2023

Attorney General Position

Target Entities That Boycott Certain Industries

■ After determining that Citigroup had discriminated against the firearms sector, Texas Attorney General Ken Paxton declared that he would not approve any public security issued on or after January 18, 2023, in which Citigroup purchased or underwrote a public security.

Financial Services Firms Subpoenaed by Texas Senate Panel Over ESG Issues

Adopted and in effect
11/22/2022

Enforcement / Divestment

Target Entities That Boycott Certain Industries

■ The Texas Senate Committee on State Affairs subpoenaed BlackRock, Vanguard, State Street and ISS to interrogate their position on ESG policies. The Committee also requested documents to evaluate how the financial services firms’ practices affect the state’s public pensions.

■ At the hearing, a BlackRock Senior Managing Director stated that BlackRock has maintained its independence from groups like the Net Zero Asset Managers initiative: “[BlackRock has] one bias, and that’s to get the best risk-adjusted returns for our clients.” The global chief investment officer for State Street Global Advisors testified that “[State Street is] not telling companies what to do, just informing them of potential climate related risks.”

Teacher Retirement System Adopts Formal ESG Policy

Adopted 9/16/2021

IPS Revisions

Promote ESG Factors in Investment and/or Proxy Voting Decisions

■ Applies to the Teacher Retirement System of Texas.

■ Directs the Investment Division to consider ESG factors that are material to long-term returns and levels of risk (Investment Policy Statement §1.5).

SB13: Relating to State Contracts with and Investments in Certain Companies that Boycott Energy Companies

Effective date 9/1/2021

Adopted 6/14/2021

Introduced 3/11/2021

Legislation

Target Entities That Boycott Certain Industries

INVESTMENT/DIVESTMENT
■ Applies to the Employees Retirement System of Texas, the Teacher Retirement System of Texas, the Texas Municipal Retirement System, the Texas County and District Retirement System, the Texas Emergency Services Retirement System and the permanent school fund.
■ Requires the Comptroller to maintain a list of financial companies that boycott energy companies.
■ Prohibits investment in listed companies. Requires divestment within 360 days from listed companies that do not cease their boycott within 90 days of receiving notice of the state entity's intention to divest.
■ Does not apply to indirect holdings in actively or passively managed investment funds or private equity funds, but requires the state entity to request that the fund managers remove listed companies from the funds or create similar funds without holdings in these companies.

CONTRACTS
■ Prohibits state governmental entities from entering into a contract with a company for goods or services worth at least $100,000 and paid at least partly from public funds unless the company verifies in writing that it does not boycott energy companies and will not do so during the contract term. Only applies to companies with at least 10 full-time employees.

SUBSEQUENT DEVELOPMENTS
Divestment Statute Lists including:
Financial Companies that Boycott Energy Companies — Updated October 2023
List of Financial Companies that Boycott Energy Companies FAQ — Updated October 2023

Companies that Boycott Israel (XLSX) — Updated October 2023

Designated Foreign Terrorist Organizations (XLSX) — Updated June 2023

Scrutinized Companies with ties to Foreign Terrorist Organizations (XLSX) — Updated June 2023

Scrutinized Companies with ties to Iran (XLSX) — Updated December 2, 2022

Scrutinized Companies with ties to Sudan (XLSX) — Updated December 2, 2022

Texas green energy probe threatens banks’ muni deals in state — Updated December 20, 2023

On October 17, 2023, Attorney General Ken Paxton Issues Enforcement Guidance For State Laws Prohibiting Public Contracts with Companies Unlawfully Maintaining "ESG" Policies.  The letter advises that it is the responsibility of all governmental entities to exercise due diligence to uphold both the letter and spirit of state law, including exercising their own due diligence and monitoring compliance with relevant government code chapters upon contract formation and any renewal or extension of the contract’s term.

SB19: Relating to Prohibited Contracts with Companies that Discriminate Against the Firearm or Ammunition Industries

Effective date 9/1/2021

Adopted
6/14/2021

Introduced
3/3/2021

Legislation

Target Entities That Boycott Certain Industries

■ Prohibits state governmental entities from entering into a contract with a company for the purchase of goods or services worth at least $100,000 and paid at least partly from public funds unless the company verifies in writing that it does not boycott firearm entities or firearm trade associations and will not do so during the contract term. Only applies to companies with at least 10 full-time employees.

SUBSEQUENT DEVELOPMENTS
HB1092, which was introduced on 3/2/2023 and which failed to pass, would have repealed SB19 and its prohibitions on state governmental entities from entering into certain contracts with companies that do not verify that they do not and will not boycott firearm entities.

On October 17, 2023, Attorney General Ken Paxton Issues Enforcement Guidance For State Laws Prohibiting Public Contracts with Companies Unlawfully Maintaining "ESG" Policies.  The letter advises that it is the responsibility of all governmental entities to exercise due diligence to uphold both the letter and spirit of state law, including exercising their own due diligence and monitoring compliance with relevant government code chapters upon contract formation and any renewal or extension of the contract’s term.

Title

Key Dates

Nature of
Action

ESG Category

Summary

 Introduced

2/18/2025

 ■ Provides that a  financial institution shall not: (1) discriminate in the provision of services to a person; or (2)  agree, conspire, or coordinate, directly or indirectly, including through any intermediary or third party, with another person, or group of persons, to engage in activity prohibited by Subsection (1).

■ If a financial institution refuses to provide, restricts, or terminates service to a person, that person may request a statement of specific reasons after receiving notice of the refusal to provide, restriction of, or termination of service. Unless otherwise prohibited by federal law, the financial institution must transmit the statement of specific reasons via U.S. Mail and electronic mail, if known to the financial institution, within 14 days of receiving the person's request. The statement of specific reasons shall include: (1)  a detailed explanation of the basis for the denial or termination of service, including a description of any of the person's speech, religious exercise, business activity with a  particular industry, or other conduct that was, in whole or in part, the basis of the financial institution's denial or termination of service; (2)  a copy of the terms of service agreed to by the person and the financial institution; and (3)  a citation to the specific provisions of the terms of service upon which the financial institution relied to refuse to provide, restrict, or terminate service. 

■ If the Attorney General has reasonable cause to believe that any financial institution has engaged in, is engaging in, or is about to engage in, any violation of this chapter, the Attorney General may investigate, may bring a civil action, and may seek remedies. Any person harmed by a violation of this chapter may initiate a civil action for either or both of the following: (1)  to recover actual damages, or $10,000, whichever is greater for each violation.  If the trier of fact finds that the violation was willful, it may increase the damages to an amount of up to three times the actual damages sustained, or $30,000, whichever is greater.  A court shall award a prevailing plaintiff reasonable attorneys' fees and court costs. 

SB667: Relating to Prohibiting State Retirement Systems from Investing in Certain Chinese-Affiliated Entities.

■ Requires the comptroller to maintain a list of all "restricted entities" based on the comptroller's judgment, on publicly available information regarding restricted entities, including information provided or made available by federal, state, or local governments, nonprofit organizations, research firms, and international organizations; and (2) request written verification from a restricted entity that it does not meet any of the criteria in the statute.

■ "Restricted entity" means a Chinese-affiliated entity or other entity associated with the People's Republic of China that is identified or included on a list maintained by the federal government for the purpose of imposing prohibitions or restrictions on entities to address national security concerns, protect human rights, or combat unfair trade practices. The state retirement system shall send a written notice informing the restricted entity of its status as a restricted entity; and warning the restricted entity that it may become subject to divestment by the state retirement system.

■ The legislation requires a state retirement system to sell, redeem, divest, or withdraw all publicly traded securities of a listed restricted entity in accordance with the following schedule:
(1)  at least 50% of the assets must be removed not later than the 180th day after the date the restricted entity receives notice unless the state retirement system determines, based on a good faith exercise of its fiduciary discretion that a later date is more prudent; and
(2) 100% of those assets must be removed from the state retirement system's assets under management not later than the 360th day after the date the restricted entity receives notice.

■ A state retirement system is not subject to these requirements if the state retirement system determines that the requirement would be inconsistent with its fiduciary responsibility with respect to the investment of entity assets or other duties imposed by law relating to the investment of entity assets, including the duty of care. 

■ A state retirement system is not required to divest from any indirect holdings in actively or passively managed investment funds or private equity funds. The state retirement system shall submit letters to the managers of each investment fund containing listed restricted entities requesting that they remove those restricted entities from the fund or create a similar actively or passively managed fund with indirect holdings devoid of listed restricted entities. If a manager creates a similar fund with substantially the same management fees and same level of investment risk and anticipated return, the state retirement system may replace all applicable investments with investments in the similar fund in a time frame consistent with prudent fiduciary standards but not later than the 450th day after the date the fund is created.

 ■ Texas Governor Greg Abbott sent a letter to Texas state agencies directing them to divest from risky investments originating from China. The Governor ordered Texas state agencies to protect Texans from exposure to the Chinese Communist Party (CCP) by fully divesting from China as soon as possible. “Security of Texas and Texans is of utmost importance,” reads the letter. “That includes the financial security of Texas state investments. Threats to that security can come from foreign adversaries, including the Chinese Communist Party (CCP), whose belligerent actions across the Southeastern Pacific region and the world have increased instability and financial risk to the State holding investments in China. Therefore, all investments of state funds in China must be evaluated and immediately addressed."

■ To further this goal, Governor Abbott has directed Texas investing entities from making any new investments of state funds in China. To the extent an entity has any current investments in China, the entity is required to divest at the first available opportunity. 

HB872: Relating to the Burden of Proof in Certain Derivative Proceedings.

■ In a derivative proceeding by a shareholder that alleges an act or omission related to the improper consideration of environmental, social, and governance criteria in the performance of the act or omission, the burden of proof is on the corporation to prove the act or omission was in the best interest of the corporation.

SB312: Relating to the Fiduciary Responsibility of the Governing Body of the Public Retirement System

■ Relates to the fiduciary responsibility of the governing body of the public retirement systems in this state and the investment managers and proxy advisors acting on behalf of those systems. Prohibits the governing body of a public retirement system from entering into a contract with an investment manager or a proxy advisor relating to investing the system's assets or voting, or advising on voting, shares held by the system unless the contract contains a requirement that the manager or advisor: (1)  takes into account only financial factors when discharging the manager's or advisor's duties under the contract with respect to investing the system's assets and voting, or advising on voting, shares held by the system; and (2)  not take any action under the contract with the purpose of furthering social, political, or ideological interests, including an action with respect to investing the system's assets or voting, or advising on voting, shares held by the system."

■ A public retirement system is not subject to a requirement of the statute if the system determines that the requirement would be inconsistent with its fiduciary responsibility with respect to the investment of system assets or other duties imposed by law relating to the investment of system assets, including the duty of care. If a public retirement system determines that complying with the requirement in a specific case is inconsistent with its fiduciary responsibility as described by Subsection (a), the system shall notify in writing the State Pension Review Board of the determination and the board shall post the determination on the board's publicly accessible Internet website.

Title

Key Dates

Nature of
Action

ESG Category

Summary

HB5245: Prohibiting discrimination by financial institutions against the firearms industry

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Prohibits financial institutions from discriminating against lawful firearms and ammunition industry companies or businesses based solely upon such a company’s or business’s engagement in the constitutionally protected commerce subject matter of firearms or ammunition.

HB5252: Prohibiting discrimination by financial institutions against the oil and gas industry

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Prohibits financial institutions from discriminating against lawful oil and gas industry companies or businesses based solely upon such a company’s or business’s engagement in the constitutionally protected commerce subject matter of oil and gas.

SB2149: Relating to boycott, coercion, and intimidation activities by insurance companies regarding environmental, social, and governance matters

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Prohibits boycott, coercion, and intimidation activities by insurance companies against companies based on ESG criteria, including companies that engage in the fossil-fuel industry, engage in the firearms industry, or do not meet greenhouse gas environmental standards.

SB2146: Relating to oversight by the comptroller of financial institution divestments from certain industries

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Requires financial institutions that operate mutual funds to periodically submit a statement to the comptroller stating whether the financial institution has divested or intends to divest from the mutual fund investments in a company that engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy.

HB3399: Relating to governmental contracts with companies that engage in certain economic boycotts

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Prohibits boycott, coercion, and intimidation activities by insurance companies against companies based on ESG criteria, including companies that engage in the fossil-fuel, timber, mining, or agriculture industries and do not commit or pledge to meet environmental standards beyond applicable federal and state law.

SB1446: Relating to the Fiduciary Responsibility of the Governing Body of the Public Retirement Systems in this State and the Investment Agents Acting on Behalf of Those Systems

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Requires the governing body of the public retirement system or an investment agent to “take into account only financial factors” when discharging its fiduciary duties and prohibits such persons from taking any action or considering any factor for the purpose of furthering “social, political, or ideological interests."

■Requires that all shares held directly or indirectly on behalf of the public retirement system be voted“ solely based on financial factors.” An investment agent may only be granted proxy voting authority if it follows a proxy voting policy published by the state or a benchmark proxy voting policy, the “sole goal” of which is to maximize financial return. Prohibits contracting with an investment manager or a proxy advisor relating to investing the system ’s assets or voting, or advising on voting, shares held by the system, unless the contract contains a requirement that the manager or advisor (1) take only financial factors into account, and (2) not take investment or voting action with the purpose of furthering ESG policies.

■Investment agents must have a demonstrated practice of following, and commit in writing to follow, guidelines that align with the duties under the statute.

SB1060: Relating to the adoption of political shareholder proposals by insurers and insurer holding companies

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Prohibits insurers or holding companies from including political shareholder proposals in proxy statements. "Political shareholder proposal" includes proposals that prohibit or limit an insurer's ability to insure an entity involved in legal activity for the purpose of achieving ESG ends.

HB2068: Relating to the fiduciary responsibility of governmental entities and the investment agents, plan administrators, or qualified vendors acting on behalf of those entities

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Prohibits the governing body of a Texas public retirement system or an investment agent from considering any factors (including when determining whether a factor is a material factor) with a purpose of furthering an ESG or similar goal. Requires a fiduciary of a state plan to consider only pecuniary factors when evaluating an investment or discharging duties with respect to a plan. A fiduciary may consider an ESG-related factor under limited circumstances.

■Requires the shares held directly or indirectly by a state plan to be voted only in the pecuniary interest of the plan, and not for the purpose of furthering an ESG or similar goal.

HCR38: Urging the United States Congress to investigate the anti-fiduciary practices of BlackRock CEO Larry Fink

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Resolution urging U.S. Congress to investigate the alleged “anti-fiduciary practices” of the CEO of a major asset manager related to the asset manager’s ESG practices.

SB242: Relating to the identification of and prohibited cooperation by state and local entities with certain federal acts that violate the United States Constitution

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Requires the attorney general to deliver a monthly report identifying each rule adopted by a federal government agency during the previous month that relates to, among other things, the regulation of the financial sector as it relates to ESG standards.

HB982: Relating to a prohibition on contracts with certain companies that use certain ESG criteria

Introduced, but did not pass in the 2023 legislative session

Legislation

Target Entities That Boycott Certain Industries

■Prohibits governmental entities from entering into contracts with a company for goods or services unless the contract contains a written verification from the company that it does not, and will not during the term of the contract, use prohibited ESG criteria to evaluate a business decision or investment strategy. "Prohibited ESG criteria" means environmental, social, and governance criteria that further political policies at the expense of the Texas economy and company shareholders.

HB645: Relating to prohibiting financial institutions and other businesses from using value-based criteria

Introduced, but did not pass in the 2023 legislative session

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■Prohibits a financial institution or business from discriminating against a person based on, among other things, any social credit, ESG, or similar value-based standards.