RegulationMarch 18, 2022

Idaho Bills Aim to Curb Public ESG Investing

Legislation identifies sustainable investing as being among ‘disfavored state investments.’

Reported by Michael Katz

Both branches of Idaho’s state legislature have put forth bills that would limit the ability of public entities such as the state’s pension funds to factor environmental, social and governance issues into their investment practices.

This comes amid a push at many public pension funds and university endowments to include ESG requirements in their asset allocation. Numerous universities have divested fossil fuels stocks from their portfolios. The California Public Employees’ Retirement System is conducting a study to determine how it can measure ESG in the private equity firms it invests in.

Senate Bill 1405, which was introduced earlier this week and passed by the Idaho Senate State Affairs Committee, is related to what it calls “disfavored state investments.” The bill states that “no public entity engaged in investment activities shall consider environmental, social or governance characteristics in a manner that could override the prudent investor rule.”

And while the bill allows fiduciaries for public entities to offer ESG investment alternatives, “such investments shall not be required and sufficient alternatives must be also offered.”

The bill also seeks to control how public entities vote regarding resolutions at portfolio company shareholder meetings. It says that “if voting of proxies is delegated to the investment agent, they shall be exercised in the best interests and for the exclusive benefit of the public entity or the beneficiaries of the investment.” This could limit how a state pension fund votes regarding ESG proposals.

And Idaho House Bill 737, which was introduced by the state’s House of Representatives earlier this month, is looking to eliminate what it calls “production industry discrimination.” The bill would prohibit investment boycotts of companies that are part of the energy, mining, production agriculture or commercial timber industries.

The bill would also prevent boycotting against firms that are involved in the exploration, production, utilization, transportation, sale or manufacturing of fossil fuel-based energy. And it would prohibit the boycotting of a company because it has not committed or pledged to meet environmental standards beyond federal and state law, or because it engages in hydroelectric energy production.

The legislation defines a boycott as “without an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a company.”