Breaking Down the Ban
What Indiana's Anti-ESG Law Will Mean for Retirement Funds
This Monday, the Indiana Legislature officially moved to ban the consideration of ESG factors by the Indiana Public Retirement System (INPRS). The move comes after the Indiana Senate passed S.B. 292 in January, a similar anti-ESG bill which the legislature’s own analysts predicted could cost retirees as much as $6.7 billion in returns. While INPRS worked with the state legislature to create a less severe version of the bill–removing the proposed requirements for INPRS to divest from managers that use ESG factors —the House Bill (H.B. 1008) passed this week is still expected to create a loss of $5.5 million for Hoosier retirement funds.
As the world becomes increasingly aware of the financial impact of sustainability issues, it’s become clear that ESG investing aligns with the fiduciary duty of pension fund managers. Wharton’s Pension Research Council has pointed out that “insufficient attention to pertinent environmental and social issues [affects] the portfolio through insurance premiums, taxes, inflated input prices, unrest and instability” which ultimately reduces returns. Public pension funds have experimented with and naturally shifted towards inclusion of some ESG investing approaches and it has become an accepted part of how they mitigate long-term risk.
While caution is expected when it comes to financial matters–who doesn’t worry about their retirement savings?–the anti-ESG movement’s conduct doesn’t actually square with reasonable hesitation. Crusaders like to argue that ESG investing will wind up sacrificing returns by focusing on non-financial factors, but this week’s bill passing in spite of anticipated losses makes it clear that protecting retirees is not actually a driving motivation. While feigning political impartiality, this version of the bill explicitly prohibits “divesting from, limiting investment in, or limiting the activities or investments of” companies in the fossil fuels, firearms, and border security industries.
In other words, this boils down to diminishing the retirement accounts of everyday Hoosiers in order to prop up companies in industries that are favored by Indiana lawmakers. Particularly as the market naturally shifts to the incorporation of at least a few ESG factors, this move reduces choice and harms Indiana residents –with the Indiana Bankers Association and the Indiana Chamber of Commerce both opposing the bill and even calling it “anti-free market.”
It was already the approach of INPRS to prioritize financial factors in its decision making; what this bill has ultimately done is damage the freedom to pursue the most effective methods of providing solid retirement returns for the purposes of what seems to be personal gain and political spite.
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