Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
A substantially altered bill cracking down on Indiana’s public pensions and external investment managers cleared a key financial panel Tuesday—with a new projected fiscal impact of $5.5 million over the next decade. That’s less than 0.1% of a previous $6.7 billion estimate, though Democrats still weren’t appeased.
House Bill 1008 seeks to block the Indiana Public Retirement System, the Indiana State Police Pension Trust and their respective publicly traded financial managers from making investment decisions based on environmental, social or corporate governmental policies, or ESG. The funds would have to divest from offending firms unless that would hurt pension members.
“These are policies that have been cooked up by Wall Street that are trying to push the sort of environmental policies, social policies and ideological things that could never pass through this legislature,” bill author Rep. Ethan Manning, R-Logansport, said Tuesday.
Manning said large financial management firms were “using their market power” to “push these policies on the private sector,” characterizing it as a “subversion of democracy.” He spoke before the House Ways and Means Committee, which must approve every bill with a financial impact.
“We have to push back against those ideas, and the available funds that we have to do that are large amounts of pension funds. INPRS has about $45 billion,” Manning added.
The bill defines what actions count as ESG investing—like investor leeriness of specific protected industries: firearms, fossil fuels and more. It also lays out enforcement mechanisms and proxy vote limits.
Bill subtly backs down
But to wipe out the previous—and staggering—financial impact, Manning introduced a substantial amendment that strategically declawed the bill.
The bill originally held external financial managers to the same standards as INPRS, applying in all activities—even to business dealings unrelated to the state of Indiana.
Manning’s amendment exempted private equity managers from key provisions, and specified that the bill applies only to what managers do “on behalf of assets managed for the public pension system.”
It also says that compliance doesn’t mean any additional obligations beyond what’s in a manager’s contract. Firms would still have to commit in writing to following the bill’s finances-first guidelines.
INPRS had previously feared the bill would “effectively eliminate private market investments and any active investment managers”—which it noted typically do better than public market indices. The changes largely alleviated those worries, according to an INPRS memo dated February 15 but that was circulated in committee Tuesday.
The amendment also specified that INPRS should track only the proxy votes made by fiduciaries—entities contracted to responsibly manage pension funds on the state’s behalf—rather than all proxy votes generally. INPRS typically has more than 200,000 of those votes, which are opportunities for shareholders to influence an entity’s management, annually.
The amendment also extended the entire framework, with some alterations, to the Indiana State Police Pension Trust. It wasn’t included before. INPRS doesn’t run that trust—its only trustee is the treasurer, who has already professed his enthusiasm for the bill.
Pushback persists, but bill passes
Manning said in committee that the changes would make the projected $6.7 billion impact “disappear.”
INPRS instead estimated in its memo that the new version of the bill would cost $550,000 annually: about $200,000 for custom proxy voting policy and infrastructure, and $350,000 for more staffing to manage the proxy voting setup. That adds up to $5.5 million over the original 10-year period.
Democrats still weren’t impressed.
In several lengthy exchanges, multiple Democrat lawmakers questioned and criticized Manning for the bill, suggesting it was unnecessary, administrative resource-intensive and could hurt pension members.
Rep. Ed DeLaney, D-Indianapolis, unsuccessfully introduced an amendment that would’ve made INPRS calculate the returns it would’ve recorded without the bill, and would’ve plugged the difference straight from the Indiana General Fund.
Rep. Ed Clere, R-New Albany, said he’d be concerned about the “open-ended effect” on that fund and wondered how INPRS would quantify what-ifs.
Another DeLaney amendment would’ve let people with defined-contribution plans pull their money out of INPRS.
“The reason I want to do this is because—why do I have the sense that this isn’t over, that this gun isn’t going to shoot one time in this attack?” DeLaney asked.
“Give people that opportunity, because I’m telling you: we are undercutting the public’s confidence in our plans and they ought to remove their money if they have that feeling,” he added.
Republicans pushed back repeatedly, arguing that the bill as amended would have a comparatively minor financial impact.
Manning also suggested that the Indiana Bankers Association, which opposed the bill in previous hearings, would be amenable to the new version—but the group told the Capital Chronicle that it is still opposed and that the banking industry would still be negatively affected.
The committee passed the bill 15-8, with all Democrats present voting against. Clere also voted no.
The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.
Please enable JavaScript to view this content.
Manning’s amended measure would require that “firms would still have to commit in writing to following the bill’s finances-first guidelines.” He apparently doesn’t comprehend what a fiduciary’s first duty always have been: to seek the highest return on the client’s investments.
That long-held principle makes this legislation unnecessary. Still, Republicans pushed back on a proposed amendment would have allowed people with defined-contribution plans pull their money out of INPRS if they feel they are about to lose money” in the state-run fund. Republicans argued that the bill as amended would have a “comparatively minor financial impact.”
Comparatively minor financial impact? The anti-ESG Republicans did not quantify what that would mean in terms of losing money, which ought to arouse suspicions about the potential for losses.
The Senate should put the brakes on Manning’s half-baked legislation to tell professional investment managers what they cannot invest in, and let their fidicuary duty serve as the safeguard against financial loss.
Manning and Prescott and Michelle Davis are leading examples of performative governance where it’s more about what looks good in a social media post as opposed to actually solving problems for Hoosiers.
Because actual governance is hard and requires people to be adults, and maybe even compromise. That’s not in their skill set.
Instead of advancing legislation to ensure all our state retirement funds are fully funded – spoiler alert, they’re not – the cultural warriors focus on inane legislation that will only detract from the funds ($5.5M over 10 years would probably cover 10 pension disbursements). No where in the original bill nor the amendment does the authoer address investment returns, just perceived management philosphies. Once again, the super majority wastes time and money offering solutions to imaginary problems instead of focusing on things that really need to be fixed.
Don’t worry, I’m from the General Assembly and I’m here to help you.
All public companies seek shareholder approval, each and every year, for a variety of matters, electing directors, approving executive compensation plans, approving hiring of auditors and maybe amending articles, as well as other major events such as mergers, etc. There are proxy advisory firms that recommend to shareholders whether to support or oppose management’s proposals to shareholders and since the majority of shares of almost all public companies are held by large institutions, those large institutional shareholders usually follow what the proxy advisory firms recommend. A negative recommendation can be very harmful. ESG is one issue that the proxy advisory firms look at; how is this company doing in these areas; global warming is a real issue for investors, even if a loud minority of elected officials deny its existence. No one wants to own stock in a company that could be on a downward path and out of existence in a few years. This effort by folks who ignore reality in our capitalist system is so much nonsense pursued by ignorant officials. Public companies will continue to focus on ESG and report on their efforts in their annual proxy statements. This is a huge exercise in legislative silliness. Votes will be cast by shareholders but no one will say their vote was based on ESG matters.
ESG plain and simple is woke economic brickbat extortion.
If you don’t agree with Leftist politics you pay.
To comply with those political issues or pet Leftist agendas, comes taxations to where once again you pay.
Don’t do business with woke companies.
Go woke, go broke!!!
Darrell don’t understand how any of this works, which is exactly what clowns like Manning are counting on..
If a fund is fully ESG and produces the best returns for Indiana pensioners, the state would be foolish to look past it.
If a fund is as anti-ESG as can be and produces the best returns for Indiana pensioners, the state would be foolish to look past it.
Which is why INPRS cares not one whit about ESG, as they have articulated in the past. Yet we are wasting legislative time on this nonsense because it impresses people like Darrell.
The attitude behind this bill is more accurately titled “we’d rather go broke than be accused of being woke”.
“We have to push back against those ideas, and the available funds that we have to do that are large amounts of pension funds. INPRS has about $45 billion,” Manning added.”
So he wants to use police and fire and teacher pensions to fight his battles.
Here’s an idea – separate out the legislative pension fund from INPRS. Let legislators be anti-woke with their retirement funds. No bailouts if they’re wrong, though.
Another idea – pass whatever anti-ESG changes you want. Also pass mandatory tax increases that kick in that cover the difference to keep the pension fund whole.
“House is in session, considering second reading amendments. Rep. Hatfield suggests a pilot program for the “anti-ESG” investing pension bill using the legislators retirement system.
Basically, if it’s such a good idea let’s prove it w/ our own retirement plan.
Rep. Manning, bill author, says we don’t need a pilot bc there is no problem.
Amendment fails.”
Huh.
https://twitter.com/ArikaHerron/status/1628797914930728961
Be interesting to see what’s in Manning’s portfolio. And Darrell’s…