As of June 30, seven states have passed legislation to allow the integration of environmental, social, and governance (ESG) factors in state investment decision-making, while 22 states have passed or introduced legislation to prohibit ESG.
How did this anti-ESG movement gain so much momentum?
Even though verified data shows that ESG factors increase returns, the mostly Republican sponsors behind a myriad new bills say ESG factors are nonpecuniary and feed into what they call “woke capitalism.”
In response, Council of State Governments’ David Adkins told Pensions & Investments that “it is clear, like critical race theory, that ESG is now the flavor of the month for being a punching bag in the culture wars, and we don’t have to accept that framing of the issue. ESG is not the enemy.”
President Joe Biden agreed with that sentiment and vetoed an anti-ESG bill at the federal level in March. Additionally, seven states have introduced or passed legislation supporting ESG investing: Delaware, Colorado, Maryland, Illinois, New Mexico, Tennessee, and Washington. Maine passed bills both for and against ESG investing.
Regardless, several state treasurers had already acted in 2022 by divesting billions of funds from BlackRock, the world’s largest asset manager, due to its stance on ESG issues:
On March 17, 2022, the state treasurer announced Arkansas would divest $125 million out of money market accounts managed by BlackRock. The state treasury invests approximately $6 billion in state funds.
On Dec. 1, 2022, the state treasurer announced that Florida will divest $2 billion from BlackRock.
On Oct. 5, 2022, the state treasurer announced the state would divest all treasury funds from BlackRock; $560 million had been removed to date and a total of $794 million was to be removed by the end of 2022.
On October 18, 2022, the state treasurer announced that the Missouri State Employees’ Retirement System
(MOSERS) has sold all public equities managed by BlackRock, pulling approximately $500 million in pension funds.
In September 2022, the state treasurer transferred approximately $100 million in state money previously managed by BlackRock to different asset managers.
On July 28, 2022, the state treasurer announced the publication of the state’s first restricted financial institution list, which listed BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo as engaged in boycotts of fossil fuel companies, and therefore, no longer eligible to enter into state banking contracts with the treasurer’s office.
In addition to these actions, 20 Republican governors, led by presidential hopeful Gov. Ron DeSantis of Florida, have joined an alliance to use the resources of their respective states to stop the expansion of ESG investing.
To date, the alliance includes Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
To see how these states, and others, are following suit at the state house and senate level, check out the list of bills that are still up for vote in the 2023 legislative session:
HB188 prohibits a state or local governmental agency or other public awarding authority from considering ESG criteria or an ESG rating when awarding a public contract that has a value of $100,000 or more.
HB2471/SB1139 prohibits the state treasurer from taking unnecessary investment risks or promoting nonpecuniary benefits or other nonpecuniary environmental, social, political, ideological, or other benefits or goals.
SB1500 requires a fiduciary of a state plan to consider only pecuniary factors when evaluating an investment or discharging duties with respect to a plan, and not to further nonpecuniary, ESG, or other benefits or goals.
HB3 would require state investment officials to make investment and shareholder decisions based solely on pecuniary factors, prohibit bonds with third party ESG ratings from being issued if the ratings are negative, and prevents ESG-related procurement policies by state and local governments.
SB266 and HB481 amend the Georgia Public Retirement Systems Investment Authority Law to require a fiduciary duty to invest retirement assets solely in the financial interest of participants and their beneficiaries and prohibits any nonpecuniary interests, including the furtherance of any social, political, or ideological interests.
SB166 prohibits the consideration of or actions on nonpecuniary interests including environmental, social, political, and ideological interests.
HCR 70 requests the state treasurer and statewide retirement systems to report on investment advisors and companies that exclude fossil fuels from its investment portfolios or otherwise applies ESG criteria and contracts with any
entity that boycotts energy companies.
LD1562 aims to establish certain standards of care for fiduciaries of the Maine Public Employees Retirement System and generally prohibits decision making with regard to investments in the retirement system based on certain nonpecuniary factors such as environmental, social, corporate governance, ideological, or political factors.
SB1192 aims to amend the Public Employee Retirement System Investment Act to require fiduciaries to consider only pecuniary factors when evaluating an investment. Pecuniary factors do not include an effect that
“primarily furthers nonpecuniary, noneconomic, or nonfinancial social, political, or ideological objectives.”
HB174 and SB286 allow the House of Representatives, the General Assembly, and the Attorney General to review presidential orders and declare them unconstitutional including the regulation of the financial sector through the imposition of environmental, social, or governance standards.
HB 770 prohibits state agencies from using environmental, social justice, or governance scores or metrics.
HB824 requires investment advisers and their representatives to disclose to and receive prior written consent from a client before incorporating social or other nonfinancial objectives into their recommendations, solicitations, or investment selections.
HB769 requires an investment fiduciary in certain public employee retirement and pension systems not to consider ESG characteristics in a manner that would override fiduciary duties.
SB436 modifies provisions relating to fiduciary duties for investments of public employee retirement systems.
HB863 prohibits state agencies from publishing information, adopting laws or rules, or issuing guidelines for purposes of social credit scores or other ESG scores or metrics.
SB2849 clarifies that fiduciary duty means investing for highest return, with no investment decision being made with the primary purpose of influencing any social or environmental policy or attempting to influence the governance of any corporation.
LB743 requires an investment fiduciary to consider only financial factors when discharging fiduciary duties. Requires all shares held by or on behalf of a public employee retirement system, the participants, and their beneficiaries be voted solely in the financial interest of participants in the system and their beneficiaries.
HB24 provides for legislative review or review by the attorney general of federal acts to determine the constitutionality of those acts and to prohibit the implementation of unconstitutional federal laws, rules, and executive orders. Including the regulation of the financial sector as it relates to ESG standards.
HB784 prohibits financial institutions from discriminating based on political affiliation or value-based or impact-based criteria, including environmental, social, and governance credit factors.
HB750 requires a fiduciary’s evaluation of an investment take into account only pecuniary factors.
S737/S679 Overlapping bills address the use of ESG criteria by state agencies and state pension plan fiduciaries. Includes prohibiting nonpecuniary factors from consideration with respect to investment decision-making and proxy voting.
S679 provides fiduciary standards of care, delegation of authority, authority for voting on shares, and proxy voting requirements; prohibits consideration of non-pecuniary factors; authorizes the attorney general to enforce this act.
HB1278 prohibits any designated agent acting as a custodian of securities purchased on behalf of funds managed by the State Investment Board from being a member of any association that has not publicly supported North Dakota’s fossil fuel and agriculture industries. Requires agents offering advisory services to support such industries.
SB6 prohibits the members of the public employees retirement board from adopting ESG policies or making investment decisions based on ESG factors.
SB634 expresses the sense of the Senate that public funds should not be dedicated to economic development projects that benefit a corporation that is actively engaged in promoting environmental, social, or political goals, objectives, or outcomes.
HB3690 prohibits consideration of nonpecuniary factors by the Retirement System Investment Commission in pension plan investments, allocating capital to an investment strategy, and proxy voting.
HB3565 requires an investment fiduciary to discharge his or her duties in the interests of the participants in a public employee retirement system and their beneficiaries for the exclusive purpose of providing financial benefits and taking into account only financial factors.
SB583 requires consideration of pecuniary factors and prohibits promotion of non-pecuniary benefits or outcomes when making an investment. Requires insurance companies, banking institutions, trust institutions, and credit unions to disclose how pursuit of non-pecuniary factors affects their services, if applicable.
HB3564 prohibits state governmental entities from entering a contract with a company for the purchase of goods or services worth at least $50,000 and paid at least partly from public funds unless the company verifies in writing that it does not engage in “economic boycotts” or use any ESG standards and will not do so during the contract term.
S111 prohibits all banks and financial institutions doing business in South Carolina (directly or indirectly) from discriminating against, advocating for, or causing adverse treatment of citizens or businesses when making lending decisions, including use of “social credit, environmental, social, and governance, or similar values-
based or impact criteria” when making determinations.
SB600 ensures that all shareholder votes by or on behalf of the West Virginia Investment Management Board and the Board of Treasury Investments are cast according to the pecuniary interests of investment beneficiaries.
SB182/466 prohibits financial institutions and governmental entities from discriminating against firearm entities because of such status.
MELANIE FELICIANO is co-owner of Georgic Media, LLC, and copy editor of Natural Investments. Mentored by the late futurist and environmental activist Hazel Henderson, her journalistic work has included coverage of the U.N. Conference on Sustainable Development in Brazil (Rio+20), the SRI Conference in Colorado, and Investors Circle conferences in San Francisco and Boston. She resides in Orlando, Fla.