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Conservative Republicans who want to thwart socially and environmentally conscious investing are now being pushed to water down their proposals after backlash from powerful business groups and fears that state pension systems could see huge losses.
In both Kansas and Indiana, where the GOP has legislative supermajorities, bankers associations and state chambers of commerce criticized the strongest versions of anti-ESG legislation currently under consideration as anti-free market.
In Kansas, their opposition prompted a Senate committee’s chair to drop the toughest version of its bill—applying anti-ESG rules to firms handling private investments—before hearings began this week. He also canceled a Thursday discussion of a milder version of an anti-ESG bill after the head of the state pension system for teachers and government workers warned that it could see $3.6 billion in losses over 10 years if the bill were passed.
And last month, legislative researchers in Indiana reported that its pension system expected the first version of a House bill to cost the system $6.7 billion over 10 years, prompting lawmakers to rewrite it before the chamber passed it.
ESG stands for environmental, social and governance and those factors’ increased use in investing in recent years inspired GOP attempts to thwart it. Now, those efforts are riling groups long allied with Republicans in backing less government regulation.
“This is the underlying political nature of this,” said Bryan McGannon, acting CEO and managing director for US SIF: The Forum for Responsible and Sustainable Investment. “They really aren’t thinking about the consequences of the kind of the real world impacts of what this means in the financial system.”
About one-eighth of U.S. assets being professionally managed, or $8.4 trillion, are being managed in line with ESG principles, according a report in December from US SIF, which promotes sustainable investing.
At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP Govs. Ron DeSantis of Florida and Greg Gianforte of Montana also have moved to ensure their states’ funds aren’t invested using ESG principles.
Critics of ESG contend that using investments to move the U.S. away from fossil fuels, address gun violence or protect abortion rights sacrifices earnings for investors and undercuts the finances of public pensions.
“The agent who is representing or investing on behalf of the principal has a fiduciary duty to put the principal’s interest over the agent’s interest,” Kansas Attorney General Kris Kobach, a conservative Republican, told the state Senate committee this week. “That principle is such a such a core of American law.”
Anti-ESG efforts also draw support from companies and industries that feel under attack, such as oil and natural gas producers. During an Indiana House committee hearing last month, lawmakers heard a litany of complaints from businesses, including those in coal mining and firearms production, about difficulties they blame on corporate ESG policies.
“This is, again, a social agenda chasing something that they shouldn’t be chasing,” Kansas Senate committee Chair Mike Thompson, a Kansas City-area Republican who labels ESG investments as “potentially dangerous.”
Public pension funds are caught in the debate as big institutional investors: The Kansas system has $25 billion in assets and Indiana’s has $45 billion. NASRA, the association representing U.S. state pension fund administrators, opposes any move—including on either side of the ESG debate—away from making the security of pension fund assets “the paramount goal.”
In Kansas, Thompson scrambled Wednesday to set up behind-the-scenes talks to address the state pension system’s concerns. His committee’s top Democrat, Sen. Oletha Faust-Goudeau, of Wichita, said Thursday that she needs the pension system to sign off to consider voting for the bill.
Its executive director, Alan Conroy, testified that Kansas lawmakers’ current proposals are so broad that the state pension system couldn’t hire or retain an investment manager who did “anything in that ESG world.” The pension system would have to fire them all, hire new ones and likely settle for lower investment returns, he said.
Similar concerns played out in Indiana, but the pension system there backed off its figure for estimated losses after House members revised their bill.
Supporters say ESG isn’t about boycotting certain industries or companies but of doing a better job assessing future risks, such as costs from major accidents or pollution, or a diminishing local water supply. They argue that considering such factors is part of an investment manager’s obligation to get the best returns possible.
“It’s just the latest moral panic that’s been invented to get the conservatives riled up,” said Kansas City-area state Rep. Rui Xu, the top Democrat on the Kansas House committee dealing with the issue.
In Kansas, the bankers and credit union association and the state Chamber of Commerce went from opposing the tougher version of the anti-ESG legislation to being neutral on all or most of its milder cousin. In Indiana, the state chamber endorsed the more limited version.
“Most of the testimony didn’t have anything to do with pensions. It had to do with different sectors feeling disadvantaged or having difficulty getting insurance or getting trucking companies to transport their weapons products and other things,” said Indiana chamber President Keven Brinegar.
Eric Stafford, a veteran Kansas Chamber of Commerce lobbyist, said free markets will make corrections if ESG investing provides lesser returns. And Alex Orel, a lobbyist for the Kansas Bankers Association, worried about a political “pendulum.”
He said: “You swing too far to the right, you swing back and it hits you right in the face.”
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The whole ESG movement certainly sounds like a social and liberalized effort to kill off certain industries that don’t meet the idealistic wishes of others. Also sounds discriminatory and somewhat arbitrary that fund investors determine what is best for all of us. I can’t say I trust any of the big investment fund managers, outside of their own self interest.
It frankly doesn’t matter. All these funds – anti-ESG, pro-ESG – still have to deliver returns.
The policy of the state of Indiana is to invest pension funds in whatever gets the best returns.
If that’s a fund that doesn’t invest in gas or oil, they invest in it.
If it’s a fund of gun makers and oil companies, they invest in it.
The fool in the Indiana House – Ethan Manning – wants to use the pension funds of teachers and policemen and firefighters to override the “best return” policy of the state … and instead make political considerations more important. Which, as noted in the article, would cost the pension funds BILLIONS.
Because Ethan Manning wants to make a point. What he wants to do is prefer some companies over others and to use taxpayer dollars to do it.
“But there won’t be any funds with gun companies and oil companies left!”
Nonsense. It’s the free market. If those companies can deliver big returns, someone will come up with a fund so they can get their cut for managing the fund.
This is what happens when deeply unserious legislators go to the Big City and realize that social media nonsense doesn’t fly in the real world. Little wonder we have legislators focused on ESG and LGBTQ … performative governance … because delivering on things that actually matter, like jobs and roads, are totally beyond their depth.
The important difference is you don’t see liberals push for laws that you HAVE invest in ESG funds. So yeah, ESG might be a liberal thing, the market still get to make a choice, that is until soft-fascist right wingers get involved, and the freedom of choice gets diminished.
Why are we calling them conservatives anymore? This proposal is trying to regulate how private businesses determine how to invest, and will lose the State money. ESG is mainly focused on environmental concerns, and the majority of the rest of the World has accepted that something needs to be done about it. The MAGA movement can’t stop facts or science globally. Anyone with knowledge of the market knows that fossil fuel industries aren’t an intelligent long-term investment. Government regulations across the globe are going to kill the industry eventually. This is just another bill responding to right-wing dog whistles, and does nothing to solve actual problems facing the State of Indiana.
Why don’t we just invest public money in instruments that produce the highest returns. If that means oil, gas so be it. Who could be against the Highest Returns?
Republicans like Ethan Manning.
It should also be noted that the Senate Republican bill just codifies the existing policy – Indiana invests in the funds with the highest returns. That’s at least a “do no harm” response to the issue.