Bloomberg Law
May 1, 2023, 9:00 AM

States Dilute Anti-ESG Investing Efforts to Avoid Pension Losses

Brenna Goth
Brenna Goth
Staff Correspondent

Republican lawmakers in Indiana and Kansas have approved measures preventing state pension funds from considering ESG factors, but both were narrowed from initial proposals amid concerns that the changes could cause losses to public retirement systems.

Kansas Gov. Laura Kelly (D) on April 25 let become law without her signature a measure (H.B. 2100) preventing the use of environmental, social, and governance considerations in state contracts and investments. Indiana lawmakers sent to the governor a bill (H.B. 1008) on April 24 that restricts the use of pension service providers that have made ESG commitments, with some exceptions.

The measures add to a growing number of states seeking to address how their pension funds are invested with regard to ESG factors that focus on issues like climate change. Backlash by Republican legislators against company ESG policies has been tempered in some cases by concerns that stringent new laws restricting investments could ultimately cost those states money in retirement plan returns.

In Indiana, the bill “ended much better than it started” after changes during the legislative process, said Greg Ellis, vice president of energy, environmental policy, and federal relations for the Indiana Chamber of Commerce. The chamber is still opposed, though, and views requirements related to specific sectors such as timber and mining as going beyond ensuring pension investments are driven by financial performance.

“We don’t think there should be what we call a winners and losers list,” Ellis said.

State proposals against ESG are making headway elsewhere. Montana Gov. Greg Gianforte (R) signed laws (H.B. 228 and H.B. 356) in April requiring public investments to consider only financial factors and banning government contracts with companies that decline to work with the firearm industry without a business reason.

Florida lawmakers also sent to Gov. Ron DeSantis (R) in April a sweeping measure (H.B. 3) that would prohibit the use of ESG factors in public investments, among other provisions. DeSantis’ office did not respond to a request for comment, though the governor has prioritized anti-ESG efforts.

Tangible Impacts

Indiana lawmakers curtailed their ESG proposal after an initial fiscal analysis found the bill could cost the public retirement system $6.7 billion over 10 years. The final version includes compliance carve-outs to reduce impacts on the state, including exempting bank holding companies and private market funds.

Under the measure, the state pension board couldn’t start or continue contracts with companies that make ESG commitments unless compliance would violate their fiduciary duty or no comparable provider exists. Those are actions such as vowing to reduce greenhouse gas emissions or limit investment in fossil fuel, mining, or agriculture companies without financial purpose.

“There are real-world impacts to these policies that hurt Indiana’s economy, hurt our businesses, and ultimately hurt Hoosiers themselves,” Rep. Ethan Manning (R), the bill’s author, said during a Feb. 27 legislative debate.

The state treasurer would determine if a company made an ESG commitment using ads, statements, reports, and participation in a coalition as evidence under the measure. The final version omitted an earlier provision that the treasurer makes the names of violators publicly available.

The measure also prevents the state pension board from making investment decisions based on any factor other than financial returns. A spokesperson for Gov. Eric Holcomb (R) declined to say whether he will sign the bill.

Some states considering broad ESG bills this year that prevent investment with certain asset managers have added a “release valve” in the case of consequences to pension plans, said Jennifer Schulp, director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives, during an April panel hosted by Bloomberg Government.

“This is not just a situation where we can let folks kind of take a political position just for the sake of saying things; there are real world impacts that are happening here,” she said.

Taxpayer Dollars

In Kansas, Gov. Kelly allowed the anti-ESG measure to become law without her signature due to reservations about unforeseen consequences, she wrote in a legislative message. Lawmakers previously this year considered broader ESG proposals that drew concerns over their cost to the state pension system.

State Treasurer Steven Johnson (R) said the new law protects the use of fiduciary principles for taxpayer dollars. Public dollars will be “invested in ways that produce the highest possible returns with the lowest acceptable risk,” he said in a statement.

The Kansas law adds to a complicated patchwork of state ESG policies and regulatory action. Companies working across states won’t please everybody, said Jason Downs, shareholder at Brownstein Hyatt Farber Schreck LLP, at the Bloomberg Government panel.

Companies navigating the changes should thoroughly review their ESG policies and practices, he said.

“Take a look at all of these statements and just sort of understand the level of risk and what you’re saying about ESG, and then compare that to the laws in the states in which you operate so that you have an understanding of the risk that you face,” he said.

To contact the reporter on this story: Brenna Goth in Phoenix at

To contact the editors responsible for this story: Bill Swindell at; Stephanie Gleason at

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