New proposed legislation in Kansas aimed at prohibiting ESG investing in the state’s pension funds and blocking the state’s suppliers from integrating sustainability-focused factors in their operations may cost the pension system as much as $3.6 billion in returns, according to an analysis released by the Kansas budget division.
The “Kansas Protection of Pensions and Businesses Against Ideological Interference Act” formed part of a series of anti-ESG initiatives by Republican politicians at the state and federal level.
Described by Kansas Attorney General Kris Kobach in a recent op-ed as “the strongest anti-ESG bill in the country,” the proposed legislation aimed to significantly block the use of ESG factors in investment, finance and business in the state, targeting what it called companies engaged in “ideological boycotts,” which could include a broad range of factors including limiting business with companies that fail to disclose greenhouse gas emissions, or even to meet environmental standards such as emissions reductions.
The proposals would require the Kansas Public Employees Retirement System (KPERS) to divest holdings in companies engaged in these “ideological boycotts,” require the state treasurer to publish a list of financial institutions engaged in these activities with banks on the list prohibited from receiving state deposits, and have state contractors provide written verification that they are not engaged in these boycotts.
The rules would extend beyond the state pension system as well, requiring registered investment advisors to obtain written consent from clients before making investments in ESG-driven funds.
According to media reports, however, the proposed bill may face challenges moving forward in its current form, given the cost revealed by the budget division report. According to the report, KPERS forecast that the proposed rules would result in a restructured investment portfolio, “because the current investment managers would be disqualified as fiduciaries and replaced by alternative investment managers,” adding that the restructuring would lead to a 0.85% reduction in returns.
The report added:
“With a reduction in expected returns of 0.85 percent, the KPERS general investment consultant projects that the investment portfolio returns would reduce by $3.6 billion over the next ten years when compared to the current investment portfolio.”
The Kansas report follows a series of recent challenges faced by the anti-ESG political movement, which includes a vote last month against two anti-ESG proposals in the Wyoming legislature, as well as a bill targeting financial institutions “engaged in boycotts of energy companies” that was opposed 90-3 in North Dakota, and analysis in Indiana that found that a rule mandating that the public pension system divest from funds that consider ESG factors would cost the system nearly $7 billion in returns over 10 years.