[co-author: Stephanie Kozol]
On January 26, Indiana Attorney General Todd Rokita issued a press release, endorsing Indiana House Bill 1008, which codifies Indiana Public Retirement System (INPRS) policy to prioritize the financial returns of public retirement funds ahead of environmental, social, and governance (ESG) corporate policies. While still in the House, legislators expect the bill to pass by its effective July 1 date.
The bill requires those supervising INPRS investments (i.e., investment managers or proxy advisors) to discharge their duties “solely in the financial interests of the participants and beneficiaries of the public pension system,” while also considering “only financial factors” to discharge the fiduciary’s duties to the state. If passed, only those who “have a practice” of following this policy, or “commit in writing” to following this policy, can manage Indiana’s public retirement funds. Further, a fiduciary may be in legal violation if he/she “[takes] an action or considered a factor with a purpose to further social, political, or ideological interests.” As currently drafted, the bill lacks any punitive measures.
In a press release, General Rokita also noted the lack of an enforcement mechanism in the bill and stated: “This bill still needs real legal teeth to hold any bite against the massive asset managers who handle a majority of the world’s wealth. It requires a real law enforcement mechanism which takes advantage of the court system and reinforces the full applicability of our consumer and anti-trust laws to the bill’s language. We are actively battling to protect investors against ESG practices and policies.”
Why It Matters?
General Rokita’s endorsement aligns with other efforts, primarily led by Republican officials, to counteract claims of potential harms to investors and consumers posed by the growing ESG movement. As one of the first examples of a legislative attempt to codify an anti-ESG policy for state retirement funds, we expect other states will follow. As such, investment firms that manage public retirement funds should pay attention to the anti-ESG movement and corresponding legislation to avoid potentially burdensome regulatory scrutiny and harm to their client base.
