Senate OKs divestment measure
Legislation calls for scrutiny, paring of state investments
The Arkansas Senate on Monday approved a bill that would require the state treasurer and state and local government entities to divest certain investments with financial services providers on a list maintained by the state treasurer due to the use of environmental, social justice or governance-related metrics.
The Senate voted 23-9 to send House Bill 1307 by Rep. Jeff Wardlaw, R-Hermitage, back to the House of Representatives to consider two Senate amendments. Three senators voted present on the bill.
Sen. Ricky Hill, R-Cabot, the Senate sponsor of the bill, said the bill is aimed at making sure the state doesn’t invest funds with financial service providers that discriminate against the energy, fossil fuel, ammunition and firearms industries.
He said he doesn’t see how the state’s retirement systems could project losses as a result of the bill when the state treasurer doesn’t have a list yet of the financial service providers that the state treasurer and state and local government entities must divest investments from due to their use of environmental, social justice or governance-related, or ESG, metrics.
Sen. Clarke Tucker, D-Little Rock, said the bill will clearly cost the state money. Officials of the state’s retirement systems have estimated the bill could potentially cost them millions of dollars.
Wardlaw has maintained the bill has been amended to minimize its impact on these retirement systems.
HB1307 would create an ESG oversight committee to determine a list of financial service providers that discriminate against energy,
fossil fuel, firearms or ammunition companies or otherwise refuse to deal based on environmental, social justice and other governance-related factors.
Under the bill, the committee would comprise four citizens of the state — with the governor, attorney general, House speaker and Senate president pro tempore each appointing one citizen — and the state treasurer or his designee.
The state treasurer would be required to maintain a list of financial service providers as determined by the ESG oversight committee on the state treasurer’s website under the bill.
In determining whether to name a financial services provider on the list, the state treasurer, under the direction of the attorney general, would be required to consider and may rely upon specified information under the bill.
The state treasurer also would be required under the bill to divest the state of all direct or indirect holdings with a financial services provider included on the list published on the state treasurer’s website, and state and local governments would be required to divest themselves of all direct or indirect holdings with a financial services provider included on the list published on the state treasurer’s website.
If an investment is subject to divestment under the bill, but is locked into a maturity date and an early divestment would result in a financial penalty to the state and cause a negative financial impact to the state, then the investment is exempt from divestiture under the bill in order to prevent financial harm to the state and ensure that the fiduciary duty for the state treasurer is met.
Wardlaw told a state Senate committee last week the bill includes a provision that states that “discriminating against energy companies” does not include actions by the investment adviser in accordance with the investment-related guidelines, policies or preference of its clients, so that’s why he believes the impact of the bill will be minimal on state government’s retirement systems.
The bill also exempts “indirect holdings.”
Arkansas Teacher Retirement System Executive Director Clint Rhoden testified last week that the system’s investment consultant, Aon Hewitt Investment Consulting, has estimated the system could lose $7 million a year as a result of the bill.
The system has $7 billion in direct investments in a total investment portfolio totaling about $20.3 billion, he said.
Rhoden asked the Senate State Agencies and Governmental Affairs Committee last week to amend the bill to completely exempt state government retirement systems to mirror West Virginia’s bill and deal with ESG investing issues in a separate bill.
Wardlaw said he already has amended the bill in good faith to minimize the impact of the bill on state government retirement systems.
Officials at the Arkansas Public Employees Retirement System have estimated the system could have a potential loss of $30 million to $40 million per year under the bill. The system’s investments are valued at about $10.5 billion.
“At present, we have no exact determination of what entities will be excluded from investments, so it is a very difficult calculation,” system Executive Director Amy Fecher said last week in a written statement.
Robyn Smith, executive secretary of the Arkansas State Highway Employees Retirement System, said in an email dated Feb. 22 to Sen. Jimmy Hickey, R-Texarkana, that in “consultation with the other State Systems and review of what has resulted in other states, our conservative estimate of losses could range anywhere from 10 basis points or $20.1 million over 15 years to 70 basis points, which would be about $140.6 million over 15 years.”
Smith said last week the highway employees retirement system’s investments are valued at about $1.5 billion.
David Clark, executive director of the Local Police and Fire Retirement System, said in an email dated Feb. 22 to Hickey that “a conservative estimate for LOPFI is a potential cost of $1 million/a year.”
Clark said last week the system’s investments are valued at about $2.5 billion.