Business pressures conservatives on ESG

Conservative Republicans who want to thwart socially and environmentally responsible investing are now being pressured to water down their proposals after backlash from powerful business groups and fear that public pension systems will suffer huge losses.

In Kansas and Indiana, where the GOP has legislative supermajorities, state bankers’ associations and chambers of commerce have criticized the strongest versions of anti-ESG legislation currently being billed as anti-free market.

In Kansas, their opposition prompted the chairman of a Senate committee to drop out the hardest version of his bill – applying anti-ESG rules to companies managing private investments – before the start of hearings this week. The Kansas committee was scheduled to vote on Thursday but could postpone action on a softer version of an anti-ESG bill after the head of the state pension system for teachers and civil servants warned that he 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 retirement system was awaiting the first draft of an internal bill cost the system $6.7 billion over 10 years, prompting lawmakers to rewrite it in front of the chamber the pass.

ESG stands for environmental, social and governance and the increased use of these factors in investing in recent years has inspired GOP attempts to thwart it. Now those efforts are riling up groups long allied with Republicans to support less government regulation.

“It’s the underlying political nature of this,” said Bryan McGannon, interim CEO and managing director of US SIF: The Forum for Responsible and Sustainable Investment. “They really don’t think about the consequences of the kind of real impacts of what this means in the financial system.”

About one-eighth of US assets managed by professionals, or $8.4 trillion, are managed in accordance with ESG principles, according to a report in December of US SIF, which promotes sustainable investment.

At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP governors. Ron DeSantis from Florida and Greg Gianforte of Montana have also taken steps to ensure that their states’ funds are not invested according to ESG principles.

Critics of the ESG argue that using investments to steer the United States away from fossil fuels, fight gun violence, or protect abortion rights sacrifices investor income and saps public pension finances.

“An agent who represents or invests on behalf of the principal has a fiduciary duty to put the interest of the principal before the interest of the agent,” Kansas Attorney General Kris Kobach, a Republican, said this week. Conservative, on the state Senate committee. “This principle is such a core of American law.”

Anti-ESG efforts also have support from companies and industries that feel under attack, such as oil and natural gas producers. At an Indiana House committee hearing last month, lawmakers heard a litany of complaints from companies, including those in coal mining and gun production, about hardships that they attribute to companies’ ESG policies.

“This is, again, a social agenda that pursues something that they shouldn’t be pursuing,” the Kansas Senate committee chairman said. Mike Thompson, a Kansas City-area Republican who calls ESG investing “potentially dangerous.”

Public pension funds are caught in the debate as large institutional investors: Kansas’ system has $25 billion in assets and Indiana’s $45 billion. NASRA, the association representing administrators of US state pension funds, opposes any move – including on either side of the ESG debate – to make the security of pension fund assets “the prime objective”.

In Kansas, Thompson rushed Wednesday to hold behind-the-scenes talks to address concerns about the state’s retirement system.

Its executive director, Alan Conroy, testified that Kansas lawmakers’ current proposals are so broad that the state’s retirement system could not hire or retain an investment manager who has done “anything in this ESG world”. The pension system would have to fire them all, hire new ones and probably settle for lower returns on investment, he said.

Similar concerns have arisen in Indiana, but the pension system there rolled back its estimated losses figure after House members revised their bill.

Proponents say ESG is not about boycotting certain industries or companies, but about better assessing future risks, such as the costs of major accidents or pollution, or dwindling local water supplies. They argue that considering these factors is part of an investment manager’s obligation to achieve the best possible returns.

“The free market is trying to create a better, more comprehensive risk assessment framework,” said Zack Pistora, a lobbyist with the Sierra Club in Kansas.

In Kansas, the Bankers and Credit Unions Association and the state Chamber of Commerce moved from opposition to the tougher version of anti-ESG legislation to neutral on the whole or most of its softer cousin. In Indiana, the state chamber approved the more limited version.

Eric Stafford, a veteran Kansas Chamber of Commerce lobbyist, said free markets would bring corrections if ESG investing offered lower returns. And Alex Orel, a Kansas Bankers Association lobbyist, 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.”


Davies reported from Indianapolis.

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