$5.5 million anti-ESG pensions bill passes House

By: - February 28, 2023 7:00 am

The Indiana House passed a bill cracking down on ESG-investing in public pensions. (Monroe Bush for Indiana Capital Chronicle)

A controversial proposal cracking down on alleged ESG investing in public pensions — while supporting “discriminated” businesses in contentious industries — passed the House mostly along party lines Monday.

It was a redemption for a bill nearly tanked by its own previous price tag.

“House Bill 1008 is about freedom and fairness in financial markets,” bill author Rep. Ethan Manning, R-Logansport, said on the floor.

Rep. Ethan Manning, R-Logansport (Courtesy Indiana House Republicans)

“ESG, or so-called environmental, social and governance policies, are highly subjective measures that have real-world impacts,” Manning added. “We need to focus our pension investments, the roughly $45 billion in assets we control, on financial factors, and leave politics and social and ideological considerations out of it.”

Democrats, meanwhile, argue the bill will harm — not help — pensions.

The House passed the bill 66-30, with all Democrats voting in opposition. Rep. Ed Clere, R-New Albany, also voted against the measure.

After its passage, a barrage of GOP representatives — nearly four dozen — signed on as coauthors. The bill now heads to the Senate for consideration. The Senate already passed a more streamlined version.

What does the bill do?

Manning’s bill defines what actions would count as ESG investing — like investor leeriness of specific protected industries: firearms, fossil fuels and more. And it would require the Indiana Public Retirement System and the Indiana State Police Pension Trust to divest from offending funds or cut ties with erring financial managers.

The bill bestows the power of enforcement upon Republican State Treasurer Daniel Elliott, who has professed his support for it. If Elliott thinks a fund or manager is violating the bill, he’d be able to investigate them — with the Office of the Attorney General’s help.

If Elliott decides they’re in violation, the pensions entities would have 180 days to start divesting — unless the INPRS or ISP boards decide that would actually hurt finances. Then, a board would have to make its rationale public.

The bill originally held external financial managers to the same standards as INPRS, applying in all activities — even to business dealings unrelated to Indiana’s pensions. A substantial amendment last week exempted private equity managers from key provisions, and specified that the bill applies only to what managers do “on behalf of assets managed for the public pension system.”

The bill also includes limits on proxy votes, which are opportunities for shareholders to influence an entity’s management.

Last week’s changes eased INPRS’ fears and brought the bill’s price tag down, but that hasn’t satisfied Democrats, who have continued to grill Manning on his intent and specific provisions.

Pension worries linger

Divestment could still cost INPRS a pretty penny.

“Potentially, the funds may earn a lower rate of return as a result of divestment, or if enforcement of the bill limits the pool of investment managers as a result of the requirements of the bill,” a revised fiscal analysis notes. And it says that if the funds don’t earn the expected 6.25% return on investment, Indiana and local government employers would have to pay up.

Democrats seized on that last week when they lobbed ten proposed changes at the bill, mostly seeking to exempt specific funds. All of the amendments failed in party-line roll calls or were ruled out of order.

Rep. Matt Pierce, D-Bloomington, in a file photo. (Monroe Bush for Indiana Capital Chronicle)

On Monday, they criticized Manning for preserving the list of industries he said were “unfairly boycotted under ESG policies” and potentially impacting corporate diversity goals.

A string of firearms manufacturers and fossil fuel companies said in committee this month that financing, insurance and shipping servicers had gradually been declining to serve them because of their industries.

“The ‘fairness’ that you concern yourself with is fairness with industries that you like, [and] that you think other people disfavor,” Rep. Ed DeLaney, D-Indianapolis, told Manning on the floor. “That’s your fairness.”

Manning said it didn’t matter if he liked the industries, adding, “I just know some of these industries are performing very well, and we want them to be available for investment — not arbitrarily limited by the asset manager.”

Rep. Matt Pierce, D-Bloomington, also criticized the inclusion of Indiana’s civil rights code on a list of ESG criteria that would run counter to the bill.

“By voting for this bill, you’re going to say it’s the policy of this state to protect firearm manufacturers and fossil fuel companies,” Pierce said, “while prohibiting anything that would prevent, in the corporate setting, discrimination against all the people that have suffered discrimination in the past. … What century are we in?”

Manning pushed back.

“This doesn’t change our civil rights statutes. You cannot discriminate based on the protected classes that we’ve lay out,” he said. “What we’re saying is you can’t institute these quotas and things on corporate boards without having a financial reason for doing so.”

GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Leslie Bonilla Muñiz
Leslie Bonilla Muñiz

Leslie covers state government for the Indiana Capital Chronicle with emphases on elections, infrastructure and transportation. She previously covered city-county government for the Indianapolis Business Journal. She has also reported on local, national and international news for the Chicago Tribune, Voice of America and more. She holds an undergraduate degree in journalism from Northwestern University.

MORE FROM AUTHOR