ATR Encourages Passage of State “Pecuniary Model” Anti-ESG Bills

Americans for Tax Reform has consistently advocated for the American Legislative Exchange Council’s (ALEC) model legislation: State Government Employee Retirement Protection Act. This bill would require public pension fund managers to solely consider pecuniary factors during proxy voting and when making investment decisions. The importance of pension fund solvency cannot be understated. Defined benefit plans held by state pension funds are guaranteed. But if a state pension makes poor investment decisions that reduce returns, taxpayers are the ones who end up paying the bill. On a quarterly basis, the Federal Reserve calculates the magnitude of pension fund assets held by state and local governments. According to the National Association of State Retirement Administrators:

As of the first quarter of 2023 (March 31st), aggregate public pension assets were $5.32 trillion, an increase of one percent from the $5.27 trillion reported for the prior quarter. This value is lower than the same quarter one year ago by some $359 billion, or 6.3 percent. The first quarter of 2023 marks the second quarter in which the aggregate value of public pension assets increased following three consecutive quarters of decline.

Below are bills that are similar or identical to ALEC’s model bill. These bills will ensure that public pensions are solely focusing on financial returns to both shore up funds for retirement distributions and avoid any future taxpayer bailouts.

Some bills have already been enacted, but for those that have not, they should be swiftly passed by their respective state legislatures:

1. Alaska (HB 174)

Alaska introduced House Bill 174 (Sponsor: Rep. McCabe), a bill that would prohibit the fiduciary of state funds such as the Alaska Retirement Management Board or Alaska Permanent Fund Board from making investment decisions with the intent of furthering a social, political, or ideological interest. The bill did not pass during the 2023 legislative session.

2. Arizona (HB 2471 and SB 1500)

If enacted, House Bill 2471 (Sponsor: Rep. Montenegro) would require all state investments to be made in the sole interest of retirement plan participants. This means that anyone who has discretionary authority over plan assets, renders investment advice, or administers a plan can only consider financial factors when making decisions about state investments.

Arizona introduced Senate Bill 1500 (Sponsor: Sen. Carroll) during the 2023 legislative session. The bill requires state investments be undertaken in the sole interest of the beneficiary. Fiduciaries of state plans are also required to consider only pecuniary factors when performing their duties. SB 1500 also requires shares held directly or indirectly by a state plan to be voted in the pecuniary interest of the plan, disregarding non-pecuniary, or ESG related factors.

3. Arkansas (HB 1253)

HB 1253 (Sponsors: Reps. McAlindon and Gonzales) was passed into law this April and became effective as of August 1, 2023. The law requires fiduciaries to execute their duties solely in the financial interest of participants and beneficiaries with respect to any Arkansas pension benefit plan and prevents the promotion of any investments promoting non-pecuniary benefits or goals. Consideration of ESG factors for fiduciaries is not acceptable under the law unless such criteria present a legitimate economic consideration under widely accepted investment practices.

4. Colorado (HB 23)

Colorado introduced House Bill 23 (Sponsor: Rep. Bockenfeld) during the 2023 legislative session. The bill would prohibit assets held by the state’s Public Employee’s Retirement Association and the state treasurer from being used to further social, political, or ideological interests beyond what is required by state and federal law. The bill requires both institutions to make investments based on purely financial factors. HB 23 also contains a provision requiring the state to verify that a company entering a government contract does not, and will not for the duration of the contract, engage in a boycott to advance political, social, or ideological interests. ATR does not endorse the boycott provisions in HB 23.

5. Florida (HB 3)

Florida passed House Bill 3 (Sponsors: Reps. Rommel and Sirois) into law on July 1, 2023. The bill contains provisions requiring companies and retirement systems to focus on pecuniary factors when making investment decisions and restricts corporations from undertaking investment decisions involving ESG factors. The legislation also includes provisions targeting entities engaging in boycotting certain industries. ATR does not endorse the boycott provisions in HB 3.

6. Idaho (SB 1405)

Effective July of 2023, Idaho’s new ESG legislation Senate Bill 1405 (Sponsor: Sen. Vick) prevents public entities that invest from allowing ESG criteria and characteristics to take precedence over the prudent investor rule.

7. Indiana (HB 1008)

Indiana’s legislature passed House Bill 1008 (Sponsor: Rep. Manning) in May and the bill became effective on July 1, 2023. The law prevents the state’s public retirement system from making an ESG commitment with respect to the system’s assets. Additionally, the legislation directs the board of the state’s public retirement fund to carry out its duties solely in the financial interest of beneficiaries such that the board undertakes investment decisions with the primary purpose of maximizing its return on investments, reinforcing its fiduciary commitment. The bill also contains provisions generally prohibiting the board from entering into contracts with service providers that have made ESG commitments. ATR does not endorse the boycott provisions in HB 1008.

8. Kansas (HB 2100)

Kansas adopted a law earlier in April that went into effect in July 2023. The bill (Sponsor: House Insurance Committee) requires the Kansas Public Employees’ Retirement System (KPERS) and any contractor or investment manager to discharge their duties solely in the financial interests of participants and beneficiaries.

9. Kentucky (HB 236)

House Bill 236 (Sponsor: Rep. Sharp) amends previously existing statutes and requires fiduciaries of state retirement systems to solely consider pecuniary factors in decisions and in line with the interests of beneficiaries. The bill prohibits the consideration of non-pecuniary factors, including ESG.

10. Michigan (SB 1192)

In Michigan, there is a bill (Sponsor: Sen. Runestad) in the senate that would require any investment fiduciary to consider only pecuniary factors when evaluating investments. The bill was reported favorably in a Senate committee but did not pass during the 2022 legislative session.

11. Minnesota (HF 3322)

Minnesota introduced HF 3322 (Sponsors: Reps. Engen, Franson, Dotseth, Novotny, Davis, and Altendorf) which directs the state retirement board to adopt an investment policy statement that highlights and outlines investment objectives for retirement fund assets. The bill states the statement “must not subordinate the financial interests of plan participants and benefit recipients to the furtherance of any social, political, or ideological interest.” Additionally, the state board must also make decisions based solely on pecuniary factors, prohibiting the sacrifice of investment returns, or undertaking of extra risk to promote non-pecuniary interests.

12. Mississippi (SB 2849)

Mississippi has had some action on the ESG front, with Republican state senator Chad McMahan introducing Senate Bill 2849, which would ensure that fiduciaries responsible for investing public retirement money only use risk and reward factors, not ESG. Unfortunately, the bill has died on the calendar, but ATR strongly urges the Mississippi legislature to reconsider the bill in the next term.

13. Missouri (HB 769 and HB 824)

A bill (Sponsor: Rep. Owen) is currently in the works in Missouri that would ban the consideration of ESG factors by investment fiduciaries that override their fiduciary duty and would prevent them from being mandated by a regulatory or legislative authority to invest in ESG-related industries or companies. ATR encourages the Missouri legislature to get this bill across the finish line.

Missouri introduced House Bill 824 (Sponsor: Rep. O’Donnell) during the 2023 legislative session. The bill requires investment advisers and their representatives to disclose and receive prior written consent from clients regarding the incorporation of social or non-financial objectives in their recommendations and solicitations.

14. Montana (HB 228)

Montana passed HB 228 (Sponsor: Rep. Moore) earlier this year in April. The law states that the evaluation by the board of investments must take into account only pecuniary factors. It explicitly permits the consideration of ESG factors only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories. This is excellent legislation that will protect retirement funds from politicization. In fact, this so closely followed ALEC’s model anti-ESG legislation that ALEC named the bill’s sponsors as their legislators of the month!

15. Nebraska (LB 743)

Nebraska’s legislature introduced Legislative Bill 743 (Sponsor: Sen. Kauth) also known as the Adopting the Investment Neutrality in Public Funds Act. The bill would have required investment fiduciaries to discharge their fiduciary duties considering only financial factors and the interests of participants in a public employee retirement system. The bill did not pass in the 2023 legislative session; however, Nebraska’s legislature should reconsider the bill and attempt to revive it during the next legislative session.

16. New Hampshire (HB 457)

A bipartisan bill (Sponsor: Rep. Bernardy) is making its way through the New Hampshire General Court, with the House having passed House Bill 457 and the Senate considering it. The bill would, if enacted, require that all investments and their management be governed by the fiduciary duty to maximize benefits for the state.

17. New York (A 4090)

Assembly Bill 4090 (Sponsor: Assemblymember Pirozzolo) has been introduced into the New York State Assembly. The bill would prohibit the state comptroller from using ESG factors as a screening method for selecting companies and funds to invest in the state pension fund.

18. North Carolina (HB 750)

House Bill 750 (Sponsors: Reps. Hall, Saine, Cairns, and Jackson) was passed by the North Carolina State Legislature on June 27, 2023, by overriding a gubernatorial veto. The legislation prevents the state treasurer and other state entities from using ESG practices to influence state investment decisions.

19. North Dakota (HB 1429)

North Dakota adopted House Bill 1429 (Sponsors: Reps. Novak, Koppelman, Louser, Jeremy Olson, SuAnn Olson, Porter, Ruby, and Thomas) in April and the legislation became effective as of August 1, 2023. The bill states the state investment board may not invest state funds for purposes of social investment unless the board can demonstrate that a social investment can provide an equivalent or superior rate of return compared to a similar investment that is not socially related.

20. Ohio (SB 6)

Senate Bill 6 (Sponsor: Sen. Schuring) is in a senate committee and would enact the following rule: the board shall make investment decisions with the sole purpose of maximizing the return on its investments. This simple rule is the key to depoliticizing investing.

21. Oklahoma (HB 1617 and SB 1004)

The Rules Committee in the Oklahoma House is considering House Bill 1617 (Sponsor: Rep. Lepak), which declares that a fiduciary’s evaluation of an investment must take into account only pecuniary factors. Plan fiduciaries are not permitted to promote non-pecuniary benefits or any other non-pecuniary goals. ATR hopes that the heavily Republican Oklahoma legislature will make sure this gets passed.

Oklahoma also introduced Senate Bill 1004 (Sponsor: Sen. Jett) in 2023 which would have created the Oklahoma Pension Fiduciary Duty Act. The legislation requires investment fiduciaries to solely consider financial factors when performing fiduciary duties and undertaking investment decisions. The bill would also require shares held by or on behalf of the public employee retirement system to be voted on solely based on the financial interests of the system’s participants and beneficiaries.

22. Oregon (HB 3219)

Oregon’s legislature introduced House Bill 3219 (Sponsors: Reps. Diehl, Wright, McIntire, Conrad, and Linthicum) during the 2023 legislative session, the bill unfortunately did not pass. However, the bill would have required fiduciaries of public pension benefit plans to consider pecuniary factors alone when making investment decisions. It also contains a provision requiring shares held by or on behalf of a pension benefit plan be voted on solely in the financial interests of plan participants.

23. South Carolina (HB 3690)

The South Carolina legislature is working toward passing the ESG Pension Protection Act (Sponsor: Rep. Taylor), which has passed the House and is in committee in the Senate. The bill requires the Retirement System Investment Commission to make investment decisions and vote on shareholder proposals that are based solely on pecuniary factors.

24. South Dakota (HB 1207)

South Dakota introduced House Bill 1207 (Sponsor: Rep. Aylward) in February 2023. The bill would require financial institutions offering public financial services and using ESG criteria to disclose their ESG standards to the State Banking Commission or Division of Insurance.

25. Utah (SB 96)

Utah has great news, as Governor Spencer Cox has recently signed Senate Bill 96 (Sponsor: Sen. Wilson), which says that the board shall make investment decisions with the sole purpose of maximizing the risk-adjusted return on the investments. This is a great law that should lead the way for other states that are interested in protecting their retirement funds from politicization.

26. Tennessee (SB 0955)

Senate Bill 0955 (Sponsor: Sen. Johnson) is an act amending the Tennessee Code Annotated (TCA), Title 9, Chapter 4, which pertains to the state’s investments. The bill requires the treasury to invest, reinvest, and manage its investments taking financial reasons solely into consideration, excluding the consideration of environmental, social, and governance criteria that are not relevant to maximizing long-term shareholder value.

27. Texas (HB 2068 and SB 1446)

In Texas, the House is considering House Bill 2068 (Sponsor: Rep. Paul), which holds that a plan administrator may approve a qualified vendor (e.g., a person who supplies goods or a service to the state government) only if the vendor agrees to act solely in the pecuniary interests of the plan’s participants and beneficiaries.

Texas also introduced Senate Bill 1446 (Sponsor: Sen. Hughes) during the 2023 legislative session, but the bill did not pass. The bill would have required the public retirement system or investment agents to solely consider financial factors when performing its fiduciary duties, prohibiting decision-making based on factors motivated by ESG or other politically motivated interests. The Texas state legislature should revisit the bill at the beginning of the next legislative session.

28. Virginia (HB 2335)

House Bill 2335 (Sponsor: Del. Durant) died in committee, but with the hope that next term it will be taken up, or if Republicans win control of the Virginia senate. The bill would have banned any kind of “social” investing that was based on ESG or any other non-pecuniary factors.

29. West Virginia (SB 600)

In West Virginia, which has also shown strong interest in defeating ESG priorities, Senate Bill 600 (Sponsor: Sen. Phillips) would require the sole consideration of pecuniary factors for state employees’ retirement funds. It defined pecuniary factors as a factor that has a direct and material effect on the financial risk or financial return.

30. Wyoming (SF 0172)

Wyoming introduced the Stop ESG-State Funds Fiduciary Duty Act (Sponsors: Sens. Biteman, Bouchard, Driskill, French, Hicks, Hutchings, Ide, Laursen, McKeown, and Salazar) during the 2023 legislative session. Although the bill did not pass, Wyoming should reconsider reviving the bill during the upcoming legislative session. The bill would require investment fiduciaries to take into account financial factors when carrying out their fiduciary duties. Additionally, the bill affirms the duties of the fiduciary are to be discharged for the sole purpose of providing financial benefits for beneficiaries of state funds.