Indiana lawmakers want the state agency responsible for managing the pension funds of Hoosier government employees, including teachers, to focus on achieving the highest investment returns at the lowest possible cost.
Officials at the Indiana Public Retirement System (INPRS) insist their top priority for investing the $42.5 billion in pension assets always has been hitting a targeted annual rate of return, currently 6.25%, with the least amount of volatility, to ensure INPRS meets its long-term obligations to its members.
In a normal timeline that would be the end of the story.
INPRS already is doing what the General Assembly wants in a way that ensures pension contributions remain stable, and no additional state appropriations are needed, for Indiana to meet its pension obligations.
However, selective right-wing outrage over investment banks sometimes choosing to consider environmental, social or governance (ESG) factors — such as reducing air pollution or ensuring diverse corporate board membership — as part of their investment strategies recently triggered Hoosier legislators to try to outlaw ESG investing at INPRS, even though INPRS doesn't do it.
"INPRS does not make any decisions on ESG policies," said Tony Green, INPRS deputy executive director, told the Senate Committee on Pensions and Labor.
Nevertheless, the Republican-controlled Senate decided last month to make doubly sure by voting 40-7 to send its comparatively simple, two-page, anti-ESG proposal in Senate Bill 292 to the Republican-controlled House.
It directs the INPRS board, in accordance with its fiduciary duties, to make investment decisions "with the primary purpose of maximizing the target rate of return on the board's investments" and to not take any action to influence any social or environmental policy, or attempt to influence the governance of any corporation for nonpecuniary purposes.
"It basically is codifying the current practice of the INPRS board," said state Sen. Travis Holdman, R-Markle, the sponsor of the legislation.
A different approach
In contrast, the anti-ESG measure recently approved 66-30 by the House and headed to the Senate is a 13-page mishmash of confusing definitions, prescriptive policies and a literal picking of winners and losers in the free market — an act many Republicans say government should never be doing.
Perhaps more importantly, state Rep. Ethan Manning, R-Denver, the sponsor, admitted during debate on House Bill 1008 that it doesn't even prevent INPRS from engaging in ESG investing if supporting ESG policies provide the highest rate of investment return.
"Somebody could do all the ESG they want — if they're the best performer, we're going to stick with them," Manning said.
That response flabbergasted state Rep. Ed Delaney, D-Indianapolis, who said "it's hard to even know where we're going."
"It appears we're doing nothing, since if it's really profitable we'll stick with it," Delaney said.
In discussing his legislation, Manning seemed more interested in a provision effectively compelling INPRS to invest in specific industries, including fossil fuels, firearms and border enforcement, because the lack of investment in those industries may reasonably be considered support for ESG policies, according to the measure.
Manning contends those industries are being discriminated against by investment firms and big banks for political reasons, and he believes it's necessary for the General Assembly to send a message Indiana still supports them.
"We want to make sure those investments, because they're great businesses, are available to our pensioners," Manning said.
Delaney questioned why Manning wants the Legislature picking winners and losers, such as propping up failing coal companies when their product is more expensive than other energy sources, instead of actually boosting pension payments to retired workers.
"Instead of saying we've got to do what we can for our pensioners, what we're saying is if you live in a small town and your coal mine closes, and your local stores shut down, guess what — we're going to help your pensions shrink, too! What kind of policy is that to compound the losses we have?" Delaney asked.
Acceptable discrimination
State Rep. Matt Pierce, D-Bloomington, also noted for the House that Manning's proposal could force INPRS to divest from businesses that take steps to include on their boards of directors individuals hailing from protected classes under Indiana law, such as women, racial minorities or military veterans.
"It's ironic that a bill, in the big picture, is saying we have fossil fuel companies and firearms manufacturers that have suffered discrimination, and therefore we must pass this bill to protect them from any future discrimination, and in the process of that we're saying, 'By the way, if you do anything to ensure there's not discrimination against individuals that are protected by our own state's civil rights statutes, statutes passed by this very body, that if you do that you're violating this thing in the name of ESG," Pierce said.
"We are like turning the world upside-down," he added. "If you're mean to a firearms manufacturer, you're going to get the boot. If you're mean to somebody based on their race, their religion, their color, their sex, their disabilities, their national origin, their ancestry or their status as a veteran, you can do that."
In addition, Delaney, Pierce and state Rep. Chuck Moseley, D-Portage, pointed out that seven of the nine INPRS board members are appointed by Republican Gov. Eric Holcomb, while the other two are Republican State Auditor Tera Klutz and Republican State Treasurer Daniel Elliott.
"There's not a bunch of crazies running around INPRS. From what I can tell, it's a bunch of conservative Republicans. Whom I'm glad to trust with my money. Why don't you trust them with your money?" Delaney asked.
Manning insisted his concern is not the INPRS board but asset managers — who are selected by the INPRS board — "using other peoples' money to promote ESG policies," instead of embracing "freedom, fairness and financial markets."
"I believe that there are many, many investment managers that could do work for INPRS who would not participate in ESG and, if possible, we should move to them. But if they're so great that we have to stick with them, even though they do ESG investing, then that's the point of having the INPRS board make the final decision based upon their existing fiduciary obligations," Manning said.
Notwithstanding their opposition to ESG investing, state senators last month also unanimously approved Senate Bill 268 directing INPRS to divest from any company owned or controlled by the Chinese government, Chinese Communist Party or the Chinese military in the hope of changing Chinese government policies.
"We, as a state and as a nation, are in direct and daily conflict with the Communist Chinese Party and yet we, the state of Indiana, remain invested in Chinese Communist Party interests," said state Sen. Chris Garten, R-Charlestown, the sponsor. "We have to acknowledge that any investment in China is an issue of national security and a monetary endorsement of human rights violations."
Records show INPRS has approximately $750 million in investments potentially subject to the China divestment mandate that INPRS would have to sell off within five years if the plan becomes law.