House Bill 1008 echoes similar legislation out of the Senate, which also requires INPRS to make investment decisions for its 500,000 members primarily to maximize the rate of return. But the House’s measure goes further. (Getty Images)
A House committee on Thursday approved a bill requiring the state’s public pension system to divest from and terminate business relationships with firms or funds that use non-financial “ESG” factors in decisions, such boycotting gun manufacturers and fossil fuel companies.
The prohibition is part of a GOP effort to crack down on the environmental, social and governmental framework known as ESG investing.
“These types of policies undermine the security that we seek,” author Rep. Ethan Manning, R-Logansport, told the House Financial Institutions Committee on Thursday. “We need to focus our pension investments on financial factors and leave the politics and the social and ideological considerations out of it.”
Proponents say House Bill 1008 ensures that managers investing on behalf of the Indiana Public Retirement System make returns-based decisions, and supports businesses in controversial industries who’ve found themselves cut off from financing, insurance and shipping options.
But opponents say it’s “anti-free-market,” and introduces burdensome administrative work for INPRS, which already follows internal policies prioritizing high returns and low risks.
House Bill 1008 echoes similar legislation out of the Senate, which also requires INPRS to make investment decisions for its 500,000 members primarily to maximize the rate of return.
But the House’s measure goes further.
Protected industries, treasurer enforcement
INPRS uses external money managers to make investment decisions for its $45 billion-plus portfolio. A team of more than 20 INPRS employees then manage those investment managers.
The legislation turns scrutiny on them.
It says portfolio company engagement, votes and other actions involving a range of topics could constitute furthering ESG interests. That includes disclosing, lowering or offsetting greenhouse gas emissions, looking at things like hiring practices and divesting from a list of protected industries.
We believe this is picking specific sectors as winners and losers.
– Indiana Chamber of Commerce Vice President Greg Ellis
Those industries are firearms manufacturing and related services; oil, gas, lumber, mining, agriculture and meat production-related businesses; and companies that contract with U.S. Immigration and Customs Enforcement. Firms that boycott those industries could find themselves subject to a mandatory reverse-boycott from INPRS.
The bill also says that advertising, statements, client letters, participation in a coalition and other choices can serve also as “evidence” of INPRS’ or an investment manager’s “purpose in managing assets.”
It mandates that everyone involved in INPRS-related investment decisions commit, in writing, to follow the requirements above, and to have a “practice of following” them.
And the bill bestows the power of enforcement upon Republican State Treasurer Daniel Elliott, who has professed his support for it. If Elliott thinks an entity or fund is violating the bill, he’d be able to investigate them — with the Office of the Attorney General’s help, if Elliott wants it.
If he decides they’re violating the bill, INPRS would have 180 days to start ending its business relationship with the firm or divesting from the fund — unless INPRS’ board decides that such action would not be in the best economic interest of its members. Then, the board would have to make its rationale public.
Preventing financial discrimination …?
A string of firearm manufacturers, coal companies and others said they hoped the bill would discourage other companies from declining to serve them.
Brent Bilsland, president and CEO of Terre Haute-based Hallador Energy, told the committee that his company had struggled with some financing, and with obtaining property and casualty insurance, because it deals in coal.
“I believe House Bill 1008 is an anti-discrimination bill,” he said at a Jan. 26 hearing. “Large financial institutions are using their market levers to drive their political agenda at the expense of Indiana companies.”
He acknowledged that House Bill 1008 wouldn’t solve all of his company’s problems, but called it a “step in the right direction,” adding, “it sends a message.”
Todd Foster, an owner of Seymour-based weapons manufacturer FosTecH said bankers, insurers and shippers had slowly cut his company off from services while citing new anti-gun ESG policies. Now, he’s got pricey insurance through an England-based entity.
Foster told lawmakers that he hoped the bill would “at least minimize and maybe even eliminate the discriminatory practices” the business faces.
Rep. Jake Teshka, R-South Bend, said the General Assembly should protect Hoosiers’ constitutional rights, especially the right to bear arms.
“Sometimes those may outweigh — it’s a policy decision — may outweigh those concerns with returns,” he said.
INPRS Deputy Director Tony Green said the system always puts economic and financial criteria first, except in cases where the law puts another priority ahead of it. For example, Indiana has divestment policies against Sudan, countries that sponsor terrorism, and entities that have boycotted Israel.
… Or unnecessary overreach?
But the conservative Indiana Chamber of Commerce came out against the proposal, with one leader calling it “anti-free market and anti-free enterprise.”
“We believe this is picking specific sectors as winners and losers,” Vice President of Energy and Environmental Policy Greg Ellis said, referencing the list of protected industries. “Market performance and financial investments should be driving pension investments. We all know that these markets change over time.”
Ellis said he himself had paid into INPRS for 12 years and didn’t care where the money was invested: “I want it to make the most money for me.”
Large financial institutions are using their market levers to drive their political agenda at the expense of Indiana companies.
– Brent Bilsland, executive at Hallador Energy
The Indiana Bankers Association also spoke against the measure, saying it could preclude some banks from doing business with INPRS.
Chief Policy Officer Dax Denton said he feared some risk management decisions “could be perceived as boycotting” and would be difficult for banks to navigate. The coal industry has experienced several bankruptcies in recent years, he said as an example, and banks might be hesitant to lend money for economic reasons rather than political ones.
“[Banks] are a ping-pong ball in many regards between state policies and federal policies related to how you treat these investments,” Denton told lawmakers. “… We simply want stick to the business of banking and focusing on our customers, and making sure they get the best rate of return.”
And he criticized the power the bill gives the treasurer to review documents.
“I think that’s very troubling, and creates significant oversight where it doesn’t need to be,” Denton said.
INPRS itself said it was neutral on the bill: supportive of the language putting financial factors first in decision-making, and of some restrictions on proxy votes, but concerned about the workload and potential chilling effects.
“How much staff would we have to hire to monitor all those investment managers that actually manage our money?” asked Green. He also said over 200,000 proxy votes are cast annually — too many to track.
And he worried about other unintended consequences.
“Are investment managers going to be willing to take the risk?” Green asked. “… When other states don’t have those rules, are they more likely to sign up with those other states? Will we have a hard time finding those investment managers?”
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