Lawmakers rewrite, advance anti-ESG pension investment bill

Lawmakers on Wednesday stripped long sections out of a controversial bill cracking down on the state’s pension investment managers, inserting a simplified structure that would reduce the fiscal impact to zero, according to the proposal’s author.

A Senate committee then handily moved the bill forward along party lines.

“The primary goal, of course, of House Bill 1008, is to keep the focus on financial returns — and not having politics and ideological considerations in our pension investments,” bill author Ethan Manning, R-Logansport, told senators Wednesday.

“And so this new House Bill 1008 is a lot simpler than what we had before,” Manning continued. “But I do believe it is stronger and will provide some important flexibilities.”

Supporters have said the bill will ensure finances come first in investment decisions — not environmental, social and governmental considerations — and that it could help businesses they say are facing ESG-based financial discrimination.

Opponents have argued the bill punishes companies who express values through business decisions and could present risks for pension members.

Amendment simplifies, strengthens

Manning’s changes aim the legislation squarely at investment managers, and rewrites a complicated enforcement mechanism involving the state treasurer.

“We have an opportunity to protect the people who work for our communities,” Republican Treasurer Daniel Elliott told the committee. “… And our office is prepared to do that work.”

The rewritten bill charges Elliott’s office 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.

Elliott’s office 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.

But Manning’s amendment expands exemptions for private equity funds, and adds exemptions for bank holding companies. Bankers previously testified in opposition to the bill.

The amendment also writes out the system’s defined-contribution plans — which represent about $7 billion of its $45 billion portfolio — and the treasurer-controlled state police pension trust.

Manning said the combined weight of those and other changes dropped the bill’s fiscal impact to near-zero. An INPRS representative said the changes had alleviated the system’s concerns, though executing the board governance changes would take work.

What’s free market?

Supporters and critics of Manning’s bill disagreed on what would most benefit Indiana.

“The benefit is first to our pensioners because they are our concern,” said Matt Bell, representing Reliable Energy Inc., a coal trade organization. But, he acknowledged, “there is an ancillary benefit to private companies.”

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 said its farmers were ill-equipped to comply with “arbitrary and subjective” federal rules.

All expressed hope that the bill would reverse that trend.

“People have already put their thumb on the scale and we’re trying to take it off,” Elliott said.

But some Democrats pushed back, seeking testimony focused on the pension system.

Manning told the Capital Chronicle he’d like the bill to have a “trickle-down” effect.

“If we can get the asset managers to focus on financial factors and not on ESG factors, that should trickle down to the companies that they invest in,” he said. Manning has maintained that the bill frees system investments from an artificially constrained set of options imposed by large investment managers.

But Indiana’s conservative Chamber of Commerce called the bill “anti-free market and anti-free enterprise,” citing the bill’s list of protected industries. Lead energy lobbyist Greg Ellis said the chamber had members in those industries, but said listing only some was “picking winners and losers.”

“I think that there are going to be industries that are going to be lining up to jump on this list next year and the years after,” said Sen. Rodney Pol, D-Chesterton.

Pol criticized the bill as telling investment managers, “do as we say, not as we do,” because lawmakers have previously passed bills forcing divestment for political reasons.

Manning called Ellis’ comments a “deliberate misreading of the bill,” adding, “I think businesses in Indiana should be thanking us for this bill.”

“[Businesses] should not be worried about what Wall Street asset managers think about their climate emissions and all these things,” he said. “They should be focused on making the best products at the best price and maximizing their returns for their shareholders.”

The committee accepted the amendment by oral consent and approved the bill 7-3, along party lines. It now goes to the full Senate for potential floor amendments, followed by a final vote.

Lawmakers could go further in future years.

Manning told the Capital Chronicle he would “absolutely” consider legislation extending the anti-ESG concept to bonds and other financial elements.