Texas anti-ESG push is coming for insurers and pensions in new bills

(Bloomberg) --A Texas lawmaker is seeking to broaden the fight against ESG policies by imposing further limits on the types of investments state pension managers can make and restricting shareholder proposals that would dictate insurance companies' business with oil and gas firms.

Senator Bryan Hughes, a Republican, filed a bill this week that would allow pensions that manage billions of dollars for state employees to work with external asset managers only if those companies agree to make investment decisions based solely on financial factors. In addition, the legislation applies to proxy advisers that give recommendations on shareholder votes for the pensions.

In a separate bill, Hughes also sought to expand the anti-ESG push to the insurance industry by going after shareholder proposals that limit business with fossil-fuel producers. He sent letters to major insurers, including Berkshire Hathaway Specialty Insurance Co., Progressive Corp., and Allstate Corp., with questions about proposals related to the energy industry, according to a copy seen by Bloomberg News.

"Insurance companies are being targeted by activist investors and by firms who buy stock, take positions in insurance companies and try to push them in a certain political position," Hughes said in an interview this week. "Just like cutting off financing shuts down a business, cutting off insurance does as well."

Spokespeople from Berkshire Hathaway, Progressive and Allstate didn't reply to emails seeking comment.

It's all part of a push by the Texas GOP to crack down on money managers that consider goals like reducing carbon emissions in addition to financial factors when making investment decisions, which some view as a threat to the state's oil and gas industry. A Texas law passed in 2021 already requires public pensions to divest from financial companies that have been labeled as "boycotting" fossil fuels, but some conservative activists say they haven't done enough to end ties with the firms, which include BlackRock Inc. and UBS Group AG.

For example, the Teacher Retirement System of Texas still held more than $4 billion of funds managed by Blackrock as of last month.

In December, Hughes organized a Senate hearing in East Texas at which lawmakers grilled officials from companies including BlackRock and State Street Corp. on whether their environmental, social and governance policies are hampering state pension investments and damaging the Texas economy.

For their part, financial companies say ESG investing is a framework that helps money managers weigh the merits of investments on the basis of criteria that go beyond profit. For example, a portfolio manager may decide not to buy shares in an oil producer if she thinks there's significant risk of climate-related restrictions hampering the business in the years to come.

The pension bill filed Thursday would require public retirement funds to submit a detailed report to the State Pension Review Board every year outlining their business relationships with asset managers and consulting firms that provide investment services.

The insurance bill filed last month would prohibit insurers from acting on shareholder proposals that seek to put limits on insuring risks related to fossil fuels, require an insurer to reduce or track greenhouse gas emissions or prohibit insuring an entity involved in otherwise legal activity "for the purpose of achieving environmental, social or political goals," or including such proposals in proxy statements.

Separately, Texas Comptroller Glenn Hegar is preparing to expand a blacklist of companies that "boycott" fossil fuels, limiting their business with government entities. The Attorney General's office also maintains a list of financial companies banned from doing business with Texas because they allegedly discriminate against the firearms industry.

--With assistance from Danielle Moran and Max Reyes.