Koch-backed conservative group pushes laws to block pensions focus on ESG

[CALIFORNIA] The American Legislative Exchange Council (ALEC), a conservative group that writes model laws and tries to convince state legislators to pass them, said it is looking to stop public pensions from making investments it calls "politically motivated".

The group on Wednesday (Apr 6) released model legislation aimed at stopping public pensions from making investments focused on environmental, social and governance factors, commonly called ESG, by mandating that investment decisions be evaluated solely according to financial criteria.

"Environmental, social, corporate governance, or other similarly oriented considerations are pecuniary factors only if they present economic risks or opportunities," reads the template, which also demands detailed justification if an investment is made based on an ESG consideration.

"Every state employee should have full faith and confidence that their retirement funds are being invested for maximum growth and not being used to promote a political agenda," Lee Schalk, ALEC's vice-president of policy, said in a statement from the group that says it's dedicated to the principles of limited government, free markets and federalism.

The move comes as retirement systems and local governments across the country have embraced efforts to use their heft to try to influence corporate behaviour.

Public pensions in New York State have been at the forefront of ESG initiatives, such as filing shareholder resolutions at the biggest US companies asking them to address issues such as climate change, worker rights and racial injustice.

In October, New York City's pension funds pledged to reach net-zero greenhouse gas emissions across investment portfolios by 2040. That followed the New York State Common Retirement Fund, which announced in late 2020 that it may divest from the riskiest oil and gas companies by 2025.

The California State Teachers' Retirement System, the second-largest US pension fund, said in March that it will vote against board directors and corporate proposals at companies deemed to have inadequate environmental, social and governance goals.

Maine last year enacted a law requiring divestment from fossil fuels, the first US state to do so.

ALEC, funded by Koch Industries, recently pushed model bills to prohibit states from doing business with financial firms that restrict ties to the oil and gas industry, following in the footsteps of Texas. BLOOMBERG