Texas House Approves Sudan Divestment Bill

May 17, 2007 (PLANSPONSOR.com) - The Texas House threw its support behind a measure that would force the state's pension funds to divest their holdings in companies doing business with Sudan, according to a news report.

The bill has already garnered the support of the Texas Senate, and if Governor Rick Perry signs it, Texas will join the handful of other states that have decided, or are considering, forcing their pension funds to cut investment ties in companies with links to the Sudanese government.

Maine,Connecticut, Oregon, and New Jersey have embraced similar divestiture legislation, while California, Massachusetts, New York, Vermont, Indiana, Ohio, Maryland, Colorado, Rhode Island, and Los Angeles either have passed or are considering divestiture legislation as well (See  Cover: Doing the Right Thing? ).

The Texas retired teachers fund and employees fund together currently hold about $700 million in shares in companies on various Sudan watch lists.

David Mattax, the chief of Texas’ attorney general’s financial litigation division, spoke out in April against the practice of forcing pension funds to divest.

He called the measure unconstitutional because it means that pension administrators would be making decisions from a social investing standpoint, rather than upholding their obligation to make investment decisions based on what is best for participants (See  TX State Lawyer: Divestment Bills are Unconstitutional ).  

Others have also taken the same attitude toward divestment as Mattax. Also in April, the California State Teachers Retirement System (CalSTRS) reneged its support for divestiture legislation (See  CalSTRS Opposes Broad Investment Bans ), claiming that such bans could hurt investment returns and cost the fund money (See    Public Pension Fund Divestment: A Fiduciary Risk? ).  

In February, U.S. District Judge Matthew Kennelly of the U.S. District Court for the District Of Illinois ruled that the portions of a divestiture law that placed those restrictions on pension investments in Illinois violated the federal government’s right to regulate foreign commerce (See  Court Blocks Illinois Sudan Law ).