Pro- or anti-capitalism? Lawmakers finalize anti-ESG pension investing bill

Indiana’s House on Monday signed off on the final version of a controversial proposal cracking down on the state’s pension investment managers — which its author said would “preserve” a free market while Democrats called it the “opposite of capitalism.”

House Bill 1008 is a response to the popularity of “ESG” investing, when environmental, social and governmental factors are considered in investment decisions.

“This bill is about keeping politics out of our investments,” author Ethan Manning, R-Logansport, told his colleagues Monday. “ESG investing has inserted politics and ideology into investments where they don’t belong.”

Others consider the framework risk management.

“I believe [the bill] is based on a false premise that ESG investment factors are about politics or ideology. ESG is about ensuring strong investment returns. It’s not about politics,” Rep. Carey Hamilton, D-Indianapolis said. “… ESG considers forward-looking risks — exactly what investment professionals should consider when managing our money.”

She argued the practice could help companies avoid expensive litigation over pollution, labor violations and more.

Bill provisions

The bill at one point had a staggering price tag of $6.7 billion over 10 years, but wholesale changes reduced that $5.5 million and then to zero.

The rewritten bill charges the state treasurer — who is supportive — with creating and publishing a list of investment managers who make “ESG commitments.”

That could include companies who promote greenhouse gas emission reductions and corporate governmental changes — including protected classes enshrined in Indiana’s civil rights code — as well as those who divest from companies in industries like weapons manufacturing, fossil fuel production or immigration enforcement. Advertising, client letters and more would count as evidence.

The treasurer would provide the asset manager’s name and evidence backing up its decision to the Indiana Public Retirement System’s board — of which the treasurer is a member.

And the bill blocks the board from entering, editing or continuing contracts with investment managers on the list, unless it can’t find a “comparable” replacement. Otherwise, the board has 180 days to make the change.

There are exemptions for private equity investment funds and bank holding companies. Manning also wrote out the state’s defined-contribution funds and the treasurer-controlled state police pension trust.

The bill’s current fiscal analysis notes that the affected agencies will have larger workloads, but that their current funding levels should be adequate. The state’s public pensions system could see higher trading costs if it’s forced to drop an investment manager, the document notes, but could make up for it if a replacement charges lower fees or brings in higher rates of return.

Where’s the capitalism?

Lawmakers and witnesses disagreed on what action would really advance free-market principles.

Manning and the bill’s supporters contend that big money management companies are forcing ESG policies on companies down the food chain.

Multiple firearms manufacturers and fossil fuel groups described insurance providers, banks, payment processors and more gradually declining to do business with them because of their industries. The Indiana Farm Bureau testified that its farmers were ill-equipped to comply with “arbitrary and subjective” federal rules.

“We are attempting to preserve a free market,” Manning said Monday. “ESG subjectively suppresses a free market by targeting industries for what they are, without taking into account the impact on financial returns.”

But Democrats said that bill was itself an artificial way to control business activity.

“This is the opposite of the free market,” Rep. Ryan Hatfield, D-Evansville, said. “This is the opposite of capitalism. This is the opposite of supporting our businesses.”

“It used to be in this chamber, that both parties stood up here and said, ‘… Allow businesses to conduct business in the manner that they view best, and for God’s sake, no matter what we do, protect Hoosier retirees,'” he continued. “I don’t know what happened to that message.”

Monday’s vote was 66-29 vote, with Rep. Ed Clere, R-New Albany, joining all Democrats present to vote in opposition.

The bill now heads to Gov. Eric Holcomb for approval.