Kansas Governor Allows Anti-ESG Bill to Become Law

Kansas Governor Laura Kelly has allowed a bill to become law that will prevent the state government, its pension funds and its school districts from using environmental, social and governance principles when investing their funds or awarding contracts. Kelly, a Democrat, declined to sign the bill but chose not to veto it, allowing its implementation.

“Because I have reservations about the potential unforeseen consequences of House Bill 2100 for the state and for local governments, I will allow the bill to become law without my signature,” Kelly said in a statement.

During the current legislative section, Kelly has vetoed 15 bills, the most in Kansas history. The Republican-controlled Kansas House of Representatives and Kansas Senate attempted multiple override votes this week, which concludes the session. The next Kansas legislative session is scheduled for January 2024.

House Bill 2100, which will become effective July 1, prohibits state entities in Kansas from “giving preferential treatment to or discriminating against companies based on environmental, social and governance criteria in procuring or letting contracts.” The law also prohibits “any action taken or factor considered by a fiduciary with any purpose whatsoever to further social, political or ideological interests.” It also restricts state agencies from “adopting environmental, social and governance criteria or requiring any person or business to operate in accordance with such criteria.”

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According to the law, a fiduciary may be determined to have taken an action or considered a factor to “further social, political or ideological interests” based on “evidence” such as portfolio company engagement “beyond what controlling federal or state law requires, specifically on assets managed on behalf of the system.”

This includes prohibiting company engagement that involves:

Eliminating, reducing, offsetting or disclosing greenhouse gas emissions;
Instituting or assessing corporate board, employment, composition, compensation or disclosure criteria;
Divesting from, limiting investment in or limiting the activities or investments of any company for failing or not committing to meet environmental standards or disclosures;
Accessing abortion, sex or gender change or transgender surgery; and
Divesting from, limiting investment in or limiting the activities or investments of any company that “engages in, facilitates or supports the manufacture, import, distribution, marketing, advertising, sale or lawful use of firearms, ammunition or component parts and accessories of firearms or ammunition.”

Although Kelly said she has “reservations” about the new law, Kansas State Treasurer Steven Johnson, a Republican, voiced his support for it.

“This bill will ensure that public dollars—particularly our state pension fund—are invested in ways that produce the highest possible returns with the lowest acceptable risk, and that public contracts are awarded to the entities best-qualified to fulfill them,” Johnson said in a statement. “There is a broad consensus that so-called environmental, social or governance (ESG) criteria should not take the place of traditional fiduciary principles in decisions about how taxpayer dollars are spent and invested.”

Kansas Attorney General Kris Kobach, a Republican who lost to Kelly in the 2018 gubernatorial election and was one of the drafters of the original ESG investment bill, also endorsed the new law.

“This is a great victory in protecting the nest eggs of Kansas teachers, police, and other state employees who deserve to have their retirement savings invested based on the best return on investment instead of to advance any one political agenda,” Kobach said in a statement. “The next step will be to protect private investors from unknowingly having their returns diminished by ESG investment strategies being used without their knowledge.”