Two proposed pieces of anti-ESG legislation have been voted down in the Wyoming legislature, including a rule that would restrict government entities from doing business with banks, investors or companies that restrict business with other companies for a range of ESG-related reasons, and one aimed at eliminating the consideration of ESG criteria by investment managers investing state funds.
The Stop ESG-Eliminate Economic Boycott Act would have required government entities to receive written assurance from companies prior to entering into contracts with them ensuring that the companies would not “engage in economic boycotts,” which included taking any action against any other company for a variety of reasons, including not meeting environmental standards or disclosing climate data.
Stop ESG-State Funds Fiduciary Duty Act outlined rules for investment managers for state funds, requiring hiring and retention only of managers that take into account “only financial factors,” effectively disallowing the consideration of ESG factors, including emissions reduction or emissions disclosure, or other factors such as limiting investments in companies that manufacture or sell firearms.
The proposals were voted down by the Wyoming House of Representatives Appropriation Committee, which unanimously recommended not passing both bills. Commentary at the hearing included concerns that the measures would impair the state’s ability to invest, restricting investment in an extremely wide range of companies, including many energy companies, in addition to impairing investment managers’ ability to execute their fiduciary duties.
Sam Masoudi, Wyoming Retirement System’s Chief Investment Officer, said:
“One of our major concerns is that ESG is defined so broadly and pretty subjectively…it’s defined so broadly here that if a company has a statement about being supportive of diversity for instance that might be enough to get them on the do not invest list. I think to your point brought up about Fortune 500 companies, everyone of them having something that might restrict us from investing, I agree with that. Earlier today, I was looking at the webpage of a very large coal company, and they have a page about their climate focus and how they are going to reduce emissions… theoretically we wouldn’t be able to invest in the coal company.”
Other concerns included the cost of restricting access to a wide set of asset managers.
Commenting on suggestions that there were still many fund managers to choose from, Patrick Fleming, Wyoming State Treasurer CIO, said:
“The problem is the difference between first quartile and third quartile as of the last study I saw is 6%, 600bps. We are trying to get every little basis point for our investments. One basis point is $2.5 million dollars on the total fund.”
The Wyoming decisions follow a series of moves challenging anti-ESG initiatives in several Republican-leaning states, including 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.