Proposed legislation introduced in Texas aimed at prohibiting ESG investing in the state’s public retirement investment system may cost the pension system billions in lost returns, according to estimates from retirement system managers.

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The bill, SB 1446, filed earlier this month by Senator Bryan Hughes, includes a proposal that would prohibit investment managers or proxy advisors from working for state pension systems if they have been determined to take “action or considers a factor in managing assets of a public retirement system that furthers, through company engagement, board or shareholder votes, or otherwise, any social, political, or ideological interest beyond what federal or state law requires.”

The bill marks the latest in a series of anti-ESG moves in Republican states, including the formation last month of a multi-state alliance to “protect individuals from the ESG movement,” through actions such as blocking the use of ESG in all investment decisions at the state and local level, and prohibiting state fund managers from considering ESG factors in their investments on behalf of the state.

Texas has been one of the most active states in anti-ESG initiatives, with actions over the past several months including having several other asset managers placed on a list for potential divestment for allegedly “boycotting” energy companies, as well as conducting a hearing, led by Senator Hughes, grilling executives from investment giants BlackRock and State Street over their ESG and climate-related stewardship, engagement voting and investment practices.

At a Texas Senate State Affairs Committee hearing this week discussing the bill, Amy Bishop, Executive Director of the Texas County & District Retirement System (TCDRS), which manages around $45 billion in assets, raised concerns that the proposals would impair the organization’s “ability to maximize our returns and have financial impact on our employers.”

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.”

While several states have introduced proposals to disallow ESG investing, many have faced similar pushback over the cost and estimated lost returns likely to result from these anti-ESG initiatives. Earlier this month, an analysis released by Kansas’s state budget division found that proposed legislation in the state prohibiting ESG investing in the state’s pension funds and blocking the state’s suppliers from integrating sustainability-focused factors in their operations may cost the pension system as much as $3.6 billion in returns. Similarly, a recent analysis in Indiana that found that a rule mandating that the public pension system divest from funds that consider ESG factors would cost the system nearly $7 billion in returns over 10 years, and in February, two anti-ESG proposals were voted down in Wyoming after concerns were raised that the measures would impair the state’s ability to invest in an extremely wide range of companies, and would impair investment managers’ ability to execute their fiduciary duties.

After hearing Bishop’s testimony regarding the potential cost of the bill to pensioners, Hughes said that the committee was “thankful that TCDRS does not do ESG,” but confirmed that “if they hire managers that do, that will not be allowed.”

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