School fund officially ‘ESG skeptical’
Move widens Texas’ war against such investment policies
The Texas Permanent School Fund on Monday adopted a new “ESG skeptical” policy that will dictate how its managers vote in corporate elections, further broadening the state’s war against so-called environmental, social and governance investment policies.
Just under half of the $54 billion held by the PSF is invested in various types of equities. As a shareholder, the fund gets to vote in matters of corporate governance, such as company policies or appointment to leadership positions. An outside firm called Institutional Shareholder Services casts proxy votes on behalf of the PSF.
The action on Monday directs ISS to vote against ESG policies, including any that might be proposed against investing in the oil and gas industry. The investment industry has faced pressure from environmental and other advocates, government regulators and clients to consider factors like climate change and human rights when making financial decisions.
Those moves have in turn angered conservatives who view it as a political attack on the fossil fuel industry.
“The PSF is proud to step up and be a national leader on this issue,” said Tom Maynard, a member of the State Board of Education who also chairs the PSF Board of Directors. “We are committed to voting our shares in a manner that reflects Texas values and protects not only the assets under the stewardship of the PSF Corporation but also the mineral, oil and gas assets that create new capital to support Texas students.”
Last month, ISS unveiled an “ESG skeptical” voting plan, saying the plan was “in keeping with our longstanding mission to provide a wide array of voting policy choices.”
An explainer posted online about the policy by Bowyer Research
said it was “not an attempt to move companies to the right, but rather an attempt to move them to neutral.”
“Although some might try to describe these guidelines as conservative, they are not designed to impose conservative politics on companies,” the explainer says. “Instead, they seek to depoliticize corporate governance, to put hotly debated issues such as climate change, abortion and racial justice back in the electoral process and out of corporate governance.”
Earlier this year, the PSF divested about $8.5 billion from BlackRock, initially describing the move as an effort to comply with a new state law that prohibits investing state dollars in companies with ESG policies.
Maynard and other board members later acknowledged it was actually a financial decision unrelated to the law. Maynard, a Florence Republican, faces a runoff election at the end of May against a well-funded challenger who is accusing him of being insufficiently conservative.
Texas Republicans have criticized large public pension funds in the past for taking proxy votes critical of the oil and gas industry. State law prohibits investment in companies that boycott fossil fuels, but there’s no law relating to proxy votes.
The PSF casts between 40,000 and 50,000 proxy votes each year through ISS, the largest proxy advisory firm in the world.
Companies like ISS have faced criticism from some for a “one-sized-all” approach that improperly influences corporate governance without sufficient checks and balances against conflicts of interest or bad policy decisionmaking.
That has resulted in more catered approaches to proxy voting; for instance, a large fund managed by Catholic dioceses could work with a proxy adviser to keep Catholic values in mind when taking board votes.
“The PSF is proud to step up and be a national leader on this issue. We are committed to voting our shares in a manner that reflects Texas values.” Tom Maynard, PSF Board of Directors chair