Investment staff of the $193.1 billion Teacher Retirement System of Texas, Austin, received the go-ahead to incorporate an ESG statement into its broad investment policy statement during a board of trustees meeting Friday.
Texas Teachers will join the approximately 70% of large U.S. pension funds that have adopted a stand-alone ESG policy or added ESG language in governing documents, TRS' analysis of its peer U.S. funds showed, according to board meeting documents.
"The (ESG) statement recognizes that ESG factors can influence the investment portfolio," said Jase Auby, TRS' CIO, in an email, adding "TRS will consider ESG factors as it makes decisions consistent with its fiduciary duty to control risk and achieve a long-term rate of return."
He added: "Recognizing that the understanding of ESG's potential impact changes dramatically over time, the (ESG) statement also requires an annual report to the board on the trust's ESG efforts."
The ESG statement itself notes that "environmental, social and governance factors influence the performance of TRS's investments. In making investment decisions, the investment management division will consider ESG factors that are material to long-term returns and levels of risk."
The statement also notes that "the materiality" of specific ESG factors varies across strategies, companies, sectors, geographies and asset classes.
It further stresses that "all investments must be made prudently and in accordance with fiduciary and ethical standards, without promoting interests unrelated to the portfolio's stated objectives of controlling risk and achieving a long-term rate of return."
The ESG policy is effective Oct. 1.
Texas Teachers' adoption of an ESG framework may be made more difficult because of a new state law that prohibits investment in and requires divestment from companies that cut ties with or boycott fossil-fuel companies.
Texas Governor Greg W. Abbott signed Senate Bill 13 into law on June 14.
TRS' analysis of the new bill suggests that there is an exception.
"A state governmental entity is not subject to the requirements of the bill if the entity 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 related to the investment of entity assets," according to a legislative report presented to board trustees during a July 16 meeting.
Texas Comptroller Glenn Hegar has not released the list of companies that fall under the law, said Kevin Lyons, a spokesman from Mr. Hegar's office.
TRS declined to comment on possible implications from Senate Bill 13, said a spokesman for the system in an email.
