Republicans in the US state of New Hampshire have introduced a bill that makes the consideration of ESG criteria by sovereign wealth funds a crime. Under the proposal, this offence could be punishable by imprisonment for not less than one year and not more than 20 years.
The initiators, led by Mike Belcher, a member of the New Hampshire House of Representatives since 2022, see the deliberate consideration of ESG criteria in investment decisions for state or taxpayer money as a breach of fiduciary duty. In their view, it is tantamount to fraud, as potential income is stolen and used for social and political activist purposes.
Under the bill, known as HB1267, executive agencies managing funds must take all necessary steps to ensure that no state-controlled investment fund invests in companies that take ESG criteria into account. The proposal has not yet been subjected to hearings in committee.
«ESG is a specific, well-defined set of criteria for social activism that has nothing to do with laws or regulations. ESG activism in investing is fraud. It should be punishable,” Belcher wrote on X in response to reporting by Bloomberg.
A ridiculous idea
According to Alex Edmans, professor of finance at the London Business School, it is “madness” to ban funds from considering certain criteria. “Some of those criteria may be irrelevant, but others may be very relevant,” he said.
“If Republican lawmakers want to achieve the highest return on investment, they should allow funds to consider as much information as possible,” Edmans said.
“Making it a crime to consider ESG is downright ridiculous. These extremist politicians are proving that they don’t actually care about New Hampshire residents. They only care about the interests of the parties funding these attacks on responsible investing,” said Kyle Herrig, spokesman for Unlocking America’s Future, a lobby group that opposes anti-ESG legislation.
“These attacks on responsible investing harm ordinary Americans, result in billions of dollars of lost pensions and damage local economies,” Herrig said.
Treasury is reluctant
In a note accompanying the proposal, the Treasury Department writes that the law may conflict with existing laws that mandate the State Treasurer to maximise financial benefits to the state.
“The impact on state revenue and expenditure is unknown. Prohibiting investments in ESG-focused companies may affect revenues and transition costs if service providers are switched,” said the ministry, which anticipates possible lawsuits if costs rise too high as may be the case in the state of Oklahoma.
The ban on working with asset managers that consider ESG criteria is being legally challenged by pension savers there. Pension savers there discovered that liquidating investments and switching to non-ESG-focused asset managers incurs significant costs.
Pension fund New Hampshire Retirement System also said the proposed restrictions could potentially reduce returns on investments, even though it is uncertain whether this would have a financial impact on employer contributions.
New Hampshire joins a growing number of states opposing ESG investing. Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Montana, North Carolina, North Dakota, Texas, Utah and West Virginia, among others, have already passed anti-ESG legislation. In all these cases, opponents of ESG claim that the use of ESG criteria is harmful to beneficiaries because it can lead to lower returns.
The most drastic anti-ESG legislation so far can be found in Florida, the issuance of ESG bonds is prohibited, and investment decisions for public pensions, local government investments and award of state or local contracts to suppliers exclude the use of ESG criteria.
Further reading on Investment Officer Luxembourg:
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- ESG on shaky ground: Higher fees no longer justify the risk
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