*This story has been updated to include a statement from the Indiana Bankers Association.
The state of Indiana has been drafted by its top legal official to become involved in a nationwide effort to target financial institutions that have chosen, or are perceived to have chosen, to move away from fossil fuel investments or participate in “leftist social causes.”
Indiana Attorney General Todd Rokita issued an advisory opinion saying that investments made by the Indiana Public Retirement System Board of Trustees could not be made with strategies based on non-financial considerations known as environmental, social and governance considerations, or ESG.
Rokita said existing federal and state laws prohibit the trustees from making investment decisions with anything but the financial interest of beneficiaries in mind. He said ESG considerations violate those laws and “advance leftist social causes” and “bad economic agendas” that could not be implemented through elections.
“This specific type of investment is disguised to appear as a good deed. Good for you, good for the planet, perhaps, but it strays from the obligation to put the financial interests of individual savers first, rather than the political objectives of investment managers,” Rokita claimed in a press conference. “‘Woke’ big businesses are collaborating with their leftist allies to subvert the will of the people. This includes investing Hoosiers’ pensions in ways that work against the best interests of Indiana families.”
Rokita’s opinion follows a failed attempt to push through a bill during the 2022 legislative session that would have prohibited the state from investing or entering into contracts with companies that “boycott” fossil fuels. The bill was pulled after the Indiana Bankers Association opposed the legislation, calling it an “anti-free market bill.”
IBA told the Indiana Environmental Reporter it was still reviewing the opinion but generally opposed restrictions on investments.
“While we are still reviewing the impact of IN AG Opinion 2022-3, restricting investments or state commerce based on ESG statements, or any other corporate statement, is fundamentally flawed. This does nothing to alleviate the increasing pressure financial institutions are facing from federal regulators related to managing climate risk. Restricting investments based on subjective ESG statements only hurts Indiana’s financial institutions and those who rely upon a diverse mix of investment options available to the IN Public Retirement System,” said IBA chief policy officer Dax Denton.
ESG criteria are used to screen investments to avoid losses when companies engage in risky or unethical practices, like supporting increasingly unpopular and potentially unprofitable fossil fuel investments.
Fossil fuel combustion has led to runaway greenhouse gas emissions that have trapped heat in the atmosphere, causing dangerous and expensive changes to the climate.
Financial institutions, pension funds, city and state governments, faith-based organizations and other entities around the world have pledged to withhold about $40.6 trillion in investment from the fossil fuel industry.
The fossil fuel industry has struck back on divestments by using its influence on red state officials and politicians through various right-wing organizations it funds, like the American Legislative Exchange Council, Heritage Foundation and others, to push through legislation and administrative actions that would protect the industry.
ALEC provides “model legislation” to lawmakers that furthers right-wing goals like opposing federal climate change actions, amending the U.S. Constitution to make it more amenable to conservative ideas, delaying the closure of coal-fired power plants, urging forest clearing by timber companies to combat wildfires, preventing states and regional efforts to regulate greenhouse gases and others.
States like Kentucky, Oklahoma, Tennessee and Texas have all passed laws based on ALEC model legislation that cuts ties with financial institutions that divest themselves of fossil fuels.
Rokita served as a keynote speaker during ALEC’s 2016 annual meeting in Indianapolis.
Rokita’s advisory opinion is based on a request from Indiana Sen. Eric Koch, public chair of ALEC’s Communications and Technology Task Force.
Some controversial environmental rollbacks in Indiana have links to ALEC or its model legislation, like the repeal of most state wetland protections authored by ALEC state chair Sen. Linda Rogers and a 2021 law that banned local governments from enacting laws that eliminated or phased out natural gas and other fossil fuel use or required energy-saving or energy-producing systems.
Rep. Ethan Manning introduced a bill that mirrored an ALEC model policy during this year’s legislative session. House Bill 1224 sought to end a “boycott” by companies that refused to invest in fossil fuels at any level, including pledges to reduce their carbon footprint and other self-governance decisions.
The bill was pulled after the Indiana Bankers Association opposed the policy in public hearings and the Indiana Department of Administration warned the legislation would further limit the already limited number of financial institutions that could provide financial services to the state, like credit cards, fuel cards, child support payment management, unemployment and other social program benefits.
The bill may resurface during the 2023 legislative session.
Rokita said that he would join the Republican attorneys general of Arizona and Missouri to investigate whether major investment management companies and programs like BlackRock Inc., Vanguard Group Inc., State Street Corp., Morningstar Inc. and the United Nations Environment Programme Net-Zero Banking Alliance have violated Indiana state law.