Sun Sentinel Palm Beach Edition
GOP’s anti-ESG proposals hit by backlash from businesses
TOPEKA, Kan. — Conservative Republicans who want to thwart socially and environmentally conscious investing are being pushed to water down their proposals after backlash from powerful business groups and fears that state pension systems could see huge losses.
In 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 last 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 to a December report 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.
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 last week.
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 Cityarea 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 on either side of the ESG debate away from making the security of pension fund assets “the paramount goal.”
Supporters say ESG isn’t about boycotting certain industries or companies but of doing a better job assessing 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.