State lawmakers are continuing their battle against banks that have chosen or are believed to have chosen to invest using considerations that have financially hurt fossil fuel suppliers and other industries that have traditionally received special protections by state Republicans.
Rep. Ethan Manning introduced House Bill 1008, which would prevent investment managers for the Indiana Public Retirement System from making investments based on social, political, ideological or other “non-financial interests.”
State law already exists that requires money managers in a trust, like INPRS, to invest and manage trust assets “solely in the interest of the beneficiaries.”
But HB1008 is different in that it would make it law that investment managers and their proxies would be in violation of their fiduciary duties if they invest in financial entities that are perceived to have limited investment in certain industries protected by state Republicans. The bill would empower the Indiana Treasurer of State to enforce the law.
The bill singles out fossil fuel suppliers, gun makers, companies that have contracted with U.S. Immigrations and Customs Enforcement for immigrant detention and related industries for protection.
Manning, who introduced a stricter version of this bill in 2022, said HB1008 would help ensure national security.
“ESG, or environmental, social and governance policies, are highly subjective measures that have real world impacts. These types of policies undermine this security that we seek. We need to focus our pension investments on financial factors and leave the politics and the social and ideological considerations out of it,” Manning said. “We must take steps like this in order to preserve freedom and fairness and financial markets.”
Coal and firearm companies based in Indiana said ESG investment strategies have limited their ability to get loans and insurance.
Brent Bilsland, CEO and president of Indiana coal supplier Hallador Energy Co., said his company was able to raise $500 million in capital among 15 banks in 2014, but in 2023 the company was only able to raise $100 million among six banks.
Bilsland attributed the change to ESG investing.
“Six of the nine banks who we expect will come out of our facility have stated to us the reason is not Hallidor. The reason is because our CEO has signed an ESG pledge or has made an internal ESG commitment. So, it's not based on risk,” Bilsland testified.
Coal production has been on the decline for at least the last decade, with the adoption of natural gas and produced by coal has dropped by at least half between 2013 and 2022.
The fall in production followed a fall in the price of coal stocks, which only bounced back in 2021 after a decline in natural gas supplies drove up the price. Germany’s transition from Russian natural gas to coal stocks after Russia’s invasion of Ukraine, as well as supply issues in Asia, have brought coal prices to record highs.
But even before then, investment firms targeted by Republicans for their ESG statements, like BlackRock Inc. and Vanguard Group Inc., continue to be among the largest investors in coal companies.
Todd Foster, one of the owners of Seymour, Indiana-based firearms manufacturer Fostech Inc., said “discrimination” through ESG investing led to his company being denied by 26 agencies for insurance coverage.
HB1008 would apply only to investments made by INPRS, but bill proponents said the bill would be a “shot across the bow” for companies making ESG investments.
Opponents of the bill, like the Indiana Bankers Association and the Indiana Chamber of Commerce, said the bill amounted to an anti-free market and anti-free enterprise interference by lawmakers.
“We believe this is picking specific sectors as winners and losers. Market performance and financial investments should be driving pension investments. We all know that these markets change over time,” said Greg Ellis, vice president of energy and environment for the Indiana Chamber of Commerce.
Indiana Bankers Association chief policy officer Dax Denton said the bill could lead to banks choosing not to do business with the state of Indiana.
“We manage a lot of variations of risks when we do business with those market sectors. And, oftentimes, that risk management could be perceived as boycotting, discriminating, however you want to define it, related to these market sectors or any other business industry for that matter,” Denton testified. “This definition, or protection, if you will, in section nine [of the bill] makes it extremely difficult for financial institutions to have to navigate that market and appear not to be boycotting that market when we make our business decisions based off of risk management.”
The bill is part of a nationwide effort by Republicans to fight back against a U.S. Department of Labor rule that changed the definition of fiduciary duties in the Employee Retirement Income Security Act of 1974 to allow the use of ESG considerations by investment managers in retirement plans governed by the law.
Sen. Mike Braun of Indiana introduced a bill at the federal level in 2022 that sought to limit the investment duties to solely monetary factors. The bill received support from prominent ultra conservative senators but did not gain traction in the U.S. Senate and ultimately failed to be considered.
A group of 25 states, including Indiana, and fossil fuel companies have filed a lawsuit to stop the new rule from going into effect Jan. 30.
The members of the House Committee on Financial Institutions will hold a vote on the bill Monday, Jan. 30. If it passes, the bill will next be considered by the full Indiana House of Representatives.