Rooting out ESG-based investing is proving to be more difficult than conservatives figured, and early efforts have faltered even in Republican-led states.
State pension managers, banking associations and business groups in more than a half-dozen conservative states have warned that bills to blacklist pro-ESG asset managers and investment funds could cost retirees and hurt local banks.
Mississippi, North Dakota and Wyoming killed anti-ESG bills, and Kansas and Indiana diluted legislation, according to an ESG tracker from law firm Ropes & Gray and an analysis by The Washington Times.
Republicans in Arizona, Texas and Kentucky have also faced resistance from state and county money managers.
West Virginia Treasurer Riley Moore, a Republican, faced headwinds as he championed a bill prohibiting state-managed funds from supporting ESG issues in the shareholder proxy voting process. The bill was recently signed into law.
Mr. Moore suggested in an interview with The Times that the pushback stemmed from “fearmongering” and outside influences.
“It was quite contentious here in West Virginia,” he said. “What I’m curious to know about all these pension fund managers in these state governments is what kind of conferences are they going to? Who are they talking to? Are they out there getting wined and dined by some of these big money managers?”
ESG — or environmental, social and corporate governance — investing focuses on climate change or social justice rather than financial returns. Proponents say the approach considers economic implications outside of regular monetary factors.
To many conservatives, it’s “woke capitalism.”
It’s also pervasive. Some of the world’s largest firms, including BlackRock, Vanguard, Wells Fargo, JPMorgan Chase and State Street, are involved. That means bills to blacklist practitioners leave limited options for states to invest in pensions or other government funds.
Despite the setbacks, the movement against ESG investing has surged over the past year. Conservative states have pulled billions of dollars from pro-ESG investment corporations and banks.
President Biden issued his first veto last month of a Republican-led bill that would have scuttled a Labor Department rule allowing 401(k) fiduciaries to use ESG in everyday Americans’ retirement plans.
Roughly a dozen Republican-controlled states — including Florida, Texas, West Virginia, Idaho and Utah — have taken action discouraging ESG or blacklisting companies thought to be “boycotting” specific industries such as fossil fuels and firearms, according to Ropes & Gray’s ESG tracker.
Wyoming, which defeated anti-ESG bills this year, enacted a law in 2021 prohibiting financial institutions from discriminating against firearms-related businesses. North Dakota also tanked anti-ESG legislation this year but enacted a law in 2021 to prohibit state pensions from making “social investments” unless they are shown to perform as well or better than similar non-social investments.
Meanwhile, nearly a dozen liberal states have taken action promoting ESG and divesting from specific industries.
A study published last year warned about the potential for unintended consequences of anti-ESG legislation.
The Wharton School at the University of Pennsylvania and the Federal Reserve projected that Texas would pay up to $532 million more in interest on $32 billion worth of loans over eight months because of less market competition after it cut off business with banks that had policies against fossil fuels or discriminated against gun makers.
In North Dakota, a Republican lawmaker who sponsored an anti-ESG bill ended up asking colleagues to tank it.
“This bill, while well-intended, had too many unintended consequences that would have hurt our own Bank of North Dakota and other Main Street banks that do support our state’s [agriculture] and energy businesses,” Rep. Mitch Ostlie said, according to S&P Global.
In Kentucky, the County Employees’ Retirement System told state Treasurer Allison Ball in February that the group could not comply with orders under a new law to divest from companies that appeared to be boycotting fossil fuels, including BlackRock.
Fund managers said divesting from BlackRock would breach their fiduciary duties.
In Indiana, lawmakers significantly weakened an anti-ESG bill after the state’s Public Retirement System said it would cost the pension fund an estimated $6.7 billion over 10 years.
The less-aggressive bill, which reportedly drops the strict anti-ESG requirement and protects the state police pension fund, had a much smaller $5.5 million loss.
Kansas watered down anti-ESG legislation after the state pension fund for teachers and government workers said it would cost $3.6 billion over 10 years because it would be unable to retain an investment manager without activity in ESG.
The bill, amended to allow pensions to keep their fund managers, passed the Legislature last week. It bars the pension fund, state and localities from engaging in ESG.
It’s unclear whether Gov. Laura Kelly, a Democrat, will veto the bill.
In Texas, where anti-ESG bills have succeeded, two state pension funds have lobbied lawmakers against banning state pensions and associated companies from engaging in ESG.
Amy Bishop, executive director of the Texas County & District Retirement System, told lawmakers that the trust does not engage in ESG but legislation forcing an adjustment of the asset allocation would cost more than $6 billion over 10 years because it “would keep us from partnering with some of the best investment managers in the world.”
Texas Sen. Bryan Hughes, a Republican and chairman of the State Affairs Committee, told Ms. Bishop that he was “thankful TCDRS does not do ESG” but added that it “will not be allowed.”
“Let’s be clear about that: If they’re hiring managers who have pledged to use oil assets to push political agendas, that will be affected by this bill,” Mr. Hughes said.
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.
Please read our comment policy before commenting.