PENSION FUND DECISIONS: Indiana House Republicans take aim at ESG investing

INDIANAPOLIS — House Republican leadership appears poised to dive back into the culture wars issue when Congress begins in January, with ESG investing, or environmental, social and government, within the Indiana public retirement system. Set goals for investments focused on

House Speaker Todd Houston (R-Fisher) declined to comment on the topic, but felt strong enough about the investment philosophy to include it in his floor speech at Organization Day in November. .

“We want pension fund managers, especially within our pension funds, to focus on investment returns rather than energy and social policy,” Houston said.

Forbes defines ESG strategy as investing in companies that score highly on measures of environmental and social responsibility as determined by independent third-party companies and research groups. Proponents of ESG investing argue that investment funds should be used in a way that reflects their values. Opponents argue that outcomes, not dogma, should drive investment strategies.

Retirement practices for civil servants have historically been restricted. Most recently, Indiana sold off a Russian company following its invasion of Ukraine, costing a pensioner more than $200 million.

However, INPRS representatives did not answer specific questions about what the ESG ban would mean for their institution.

“…INPRS makes investment decisions based on return and risk objectives as permitted by state and federal law,” said an INPRS spokesperson. “INPRS complies with all laws established through the federal and state legislative processes. If laws change at any time, INPRS will adjust its internal processes to comply with the changes.”

What is ESG investment?

David Shin, a visiting assistant professor of ESG investment research at Indiana University, said there are no standards for defining ESG investing in the industry, meaning investment firms are free to do so.

“Even if they say, ‘We are ESG friendly,’ their actions may not be ESG-focused,” says Shin. “For example, many financial institutions offer their clients her ESG-related products, but they may be doing so simply to attract more capital flows. No consensus has been reached.”

Rather, ESG is one of a myriad of approaches that investment firms can use in deciding how to divide their funds. Environmental factors can assess the impact a company has on the environment, and social dimensions can focus on whether a company is investing in the community. In terms of governance, investors can focus on company operations and executive compensation.

According to Singh’s research, many so-called ESG funds focus more on environmental or social aspects than on their longstanding strategy of corporate governance. The term comes from his 2004 United Nations report in which the former Secretary-General invited her CEOs of 55 of the world’s leading financial institutions to become responsible investors.

“After that, people naturally became interested in ESG factors,” says Shin. “Formally, I think the United Nations could be the first kind of agency or international body to initiate ESG.”

According to Singh, the second big shift in ESG policy came in 2019 from the Business Roundtable, an association of leading U.S. CEOs, which focused on stakeholder engagement on a par with maximizing shareholder value. I urge you to take your opinion seriously. In the past, our only priority was to generate greater returns for our shareholders.

“This was a huge shift in the corporate world because the purpose of the company has changed,” Singh says. “(One of the possible reasons he said) caring for other stakeholders may also be good for maximizing the value of the fund …Another reason is that people are concerned about their human rights (and) It could be to emphasize equal rights.”

Research is mixed on whether ESG investing performs worse than traditional investment approaches. According to Singh, some research has shown that ESG funds have better flow of money and attract more clients than traditional funds, but their performance has been about the same.

“We cannot say that ESG investing has increased or decreased the value of[funds]. More research is needed,” Singh said. “There is mixed evidence for strong returns.”

Due to limited data on private funds, Shin wasn’t sure if ESG investing is more common in public or private funds. Still, the popularity of this approach is growing.

“According to the Global Sustainable Investment Association, ESG investments were $22.8 trillion in 2016. That number will grow to $30.6 trillion in 2018 and $35 trillion in 2020,” Singh said. I’m here. “So in terms of absolute value, ESG assets are growing steadily.”

actual invoice?

No bills were formally introduced at this session, but the anti-ESG bills introduced earlier this year could hint at a broader stroke.

House Bill 1224 even included a section prohibiting public employee retirement funds from investing in financial firms that boycotted certain energy companies and stipulating that agency agreements could not enter into agreements with those companies.

The bill’s author, Rep. Ethan Manning (R-Logansport), sponsored the bill, which passed the House on its second reading, but did not move forward after that.

Manning did not respond to requests for an interview, but confirmed in a statement that the matter would be explored again at the next session.

“…coal and natural gas continue to be the primary sources of energy for power production in Indiana, and these companies and their suppliers are investing in capital and services to provide the fuel that powers the Hoosier economy. We need access to,” Manning said in a statement. “We look forward to continuing these discussions during the 2023 legislative session and finding what is best for our state and the people we serve.”

Manning, who introduced HB 1224 to the committee in January, said banks, investment firms and insurance companies were discriminating against fossil fuel companies, but said the bill would not force companies to do anything. emphasized.

“(This is) technically about government investments and contracts, but the real purpose of this bill is grid reliability and who sets energy policy,” Manning said Jan. 25. said at the meeting of the day. We cannot allow these companies to make poor decisions based on political philosophies and activist pressure, rather than economic gain, to the detriment of Indiana’s energy companies and the Hoosiers themselves. ”

Former Rep. Terry Austin (D-Anderson) noted that similar bills are being pushed by ultra-conservative groups across the country. She said she has reservations about imposing such obligations on universities and local governments, even if there is no enforcement mechanism.

“…The truth of the matter is that, as free market nations, and as people who believe in free markets and capitalist systems, we need to tell financial institutions and corporations what they can and cannot do through their boards. Unless it becomes,” Austin said.

For many, a sale to fossil fuels could be seen as a long-term investment in a future with renewable energy sources, she added.

“Why on earth are you trying to punish people for trying to invest wisely, or at least make decisions that they consider future-oriented?” Austin asked.

Manning said companies can choose to “change society,” but they did so at the risk of losing business with Indiana and its local governments.

The bill passed the commission by a vote of 7 to 5, with two “no” votes and two “yes” votes from Manning’s fellow Republicans, who said they had their own reservations, as well. If the bill is introduced in Congress, it will prove difficult to move forward. Congress in 2023.

Last year’s version did not include an enforcement mechanism, but committee members openly speculated whether the Attorney General would be responsible for it.

In a number of press releases this year, Rokita accused the investment firm of “imposing an awakened ideology… (and) potentially harming investors and consumers.”

He argued that the approach prioritized leftist ideals over financial gain, which his supporters rejected.

“So-called ‘ESG investing’ aims to bring attention to environmental, social and governance issues,” Rokita said in a November release. “Although proponents of this approach maintain that their activities are not an impediment to making money, they are deliberately criticizing their ploys to subvert the will of the people for ‘progressive’ politics. You are trying to mislead the public.”

Growing interest in the Republican Party

Many of Manning’s claims dovetail with the national conversation that has picked up since Manning introduced the bill in January.

Sources told Axios over the summer that Republicans in the U.S. House of Representatives would seek testimony from CEOs of investment firms that use ESG investment approaches if they win a majority. In addition to Rokita, her 18 other attorneys general have asked the Securities and Exchange Commission to look into BlackRock, the largest investment firm pursuing ESG investing.

Sen. Mike Brown joins Kentucky Rep. Andy Burr after President Joe Biden passed an executive rule in November allowing fiduciaries to consider ESG factors in investment decisions. , introduced a joint parliamentary review to reverse this change.

In a statement last month, Mr. Brown said, “When American workers invest for retirement, they should be able to trust financial advisors who are investing with their best interests in mind, not those of liberal activists. It is.” “I am proud to lead my colleagues in this effort to overturn the Biden administration’s awakened 401k rule and protect Americans’ retirement benefits.”

Earlier this month, the Florida Department of Treasury sold a $2 billion state fund from BlackRock in a move against ESG investing. But groups across the country, from Tennessee evangelical Christians to Fox News personality Tucker Carlson, have opposed the movement.

However, an outright ban could come at a cost to the state. A Texas study found that the state agency paid an additional $303 million in interest to him $532 million as bond competition decreased following the ban on ESG investing.

The Indiana Capital Chronicle is an independent, non-profit news organization covering state government, policy and elections.

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