ICYMI: Anti-ESG Push Losing Steam in GOP States
ICYMI: Anti-ESG Push Losing Steam in GOP States • April 6, 2023
Anti-ESG bills not possible “without losing money” - Wyoming State House Appropriations Committee Chairman
Last week, reporting from Bloomberg highlighted how several states with Republican-controlled legislatures (Indiana, Kansas, North Dakota, and Wyoming) have scrapped or significantly weakened Anti-ESG initiatives after state pension fund managers and budget watchdogs raised alarms that the bills would shift major costs to taxpayers and retirees. The report noted support is also weakening in other states.
14 of Arizona’s 15 county treasurers called on legislators not to pass two anti-ESG bills that they said would “politicize our government procurement process at the cost of our state economy and the Arizona taxpayer.” Four anti-ESG bills died during Mississippi’s 2023 legislative session.
Bloomberg: Money Managers Raise Alarms Over Anti-ESG Crusade in GOP States
Pension managers and fiscal watchdogs are raising alarms, and lawmakers are listening
The Republican Party’s crusade against ESG investments is fracturing after pension-fund managers and budget watchdogs in several states denounced proposals that came with hefty price tags for retirees and taxpayers.
In a rebuke to a movement that’s taken hold in conservative strongholds like Texas and Florida, legislators in the GOP-controlled statehouses of Kansas, Wyoming, North Dakota and Indiana killed or significantly watered down bills that would limit so-called environmental, social and governance investing practices or force governments to sever business relationships with Wall Street firms that espouse the policies.
In Indiana, an anti-ESG bill was dialed back in February after the state’s pension operator estimated it would cost retirees almost $7 billion over the next decade. In Kansas, the chief of its state pension fund said a proposal initially under consideration would reduce returns by $3.6 billion. “That is a big number for good ol’ Kansas,” Alan Conroy said in an interview.
But the backlash to the backlash in some smaller GOP-led states highlights the division within Republicans’ anti-ESG campaign. Some officials are breaking with the party to say that politicians telling businesses how to operate is never a good idea, no matter who is doing it, while other fiscally-minded conservatives are put off by the projections for billions of dollars in costs to taxpayers.
“The question is, are we biting off our nose to spite our face?” asked Wyoming Representative Bob Nicholas, a Republican and chairman of the state’s House Appropriations Committee, in a February hearing discussing two anti-ESG bills. “I don’t think it would be possible for us to do this without losing money, or without losing the ability to get the best product for the best price for Wyoming.”
In February, Wyoming lawmakers voted down bills that would have required money managers to only consider financial factors when making investments and avoid entering new contracts with any company deemed to “boycott” certain industries, including firearms or fossil fuels.
The chief investment officers for the state treasurer and the Wyoming Retirement System testified at a Feb. 21 hearing, warning investment performance could suffer. They predicted significant cost increases and complained that ESG was too broadly defined in the bills.
By contrast, Indiana’s budget watchdog projected that an anti-ESG proposal would cost $6.7 billion over the next decade. The Indiana Bankers Association and the State Chamber of Commerce came out against the bill, and House lawmakers eventually watered it down to exclude private market funds from the ESG investment restrictions. The weaker proposal, now under consideration in the Senate, would cost just $550,000 in extra administrative expenses.
[Alan] Conroy, the executive director of the Kansas Public Employee Retirement System, voiced his opposition to restrictions on public investments and contracts at a committee meeting this month. The legislation was amended after Conroy and others spoke out, narrowing the scope to allow the pension operator to retain its current fund managers.
In North Dakota, the chief of the state financial regulator testified against proposals that would have tasked the state’s treasurer with coming up with a list of finance firms that would be subject to divestment because of their perceived anti-fossil fuel policies, warning it was too vague and relied on spurious complaints. When the vote came, the opposition was overwhelming — 90-3 against.
Fractures are emerging in other states as well. In Arizona, treasurers in 14 of its 15 counties wrote an open letter to the legislature begging lawmakers not to pass two bills that they said would “politicize our government procurement process at the cost of our state economy and the Arizona taxpayer.” And four anti-ESG bills proposed in Mississippi died in committee during the 2023 legislative session, according to an ESG bill tracker compiled by law firm Ropes & Gray.
That ambiguity about what exactly ESG is and how to differentiate between policies that are driven by prudent risk management and those with purely political motivations may be giving lawmakers pause, according to Jill Fisch, a business law professor at the University of Pennsylvania … “You don’t want to tie the hands of your pension fund managers. You don’t want taxpayers to take a hit because you don’t understand the messy empirical evidence.”
On March 27, Amy Bishop, the executive director of the Texas County & District Retirement System, voiced concern that a bill under debate would hamper the fund's ability to work with best investment managers in the world for its $45 billion of assets. She estimated that forced adjustments to the investment allocation could cost $6 billion over next 10 years.
The Facts on ESG: Data about environmental, social, and governance (ESG) risk factors is widely used by investment managers, financial institutions, and corporations to understand additional risk factors that affect their investments. Often incorrectly equated with impact investing, which chiefly aims to generate specific beneficial social or environmental effects, the objective of using ESG data is to improve financial performance.
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