Indiana Amends ESG Bill to Exclude Private Markets

Indiana’s House of Representatives’ Ways and Means Committee passed an amended anti-ESG bill on Tuesday that significantly reduces the additional costs the state’s retirement system would have to shoulder if the proposed legislation becomes law.

Indiana House Bill 1008, which was introduced last month by State Representative Ethan Manning, a Republican, requires the state’s public retirement system to divest from and stop doing business with companies or funds that use environmental, social and governance factors in their investment decisions.

The bill is intended to provide that “a fiduciary, in making and supervising investments of a reserve fund of the public pension system, shall discharge the fiduciary’s duties solely in the financial interest of the participants and beneficiaries of the public pension system.”

An analysis of the original bill by the Indiana Legislative Services Agency said the bill could result in reduced aggregated investment returns over the next decade of approximately $6.7 billion, $6.4 billion of which would be lost by the state’s public defined benefit plans, with $300 million set to be lost from defined contribution funds.

According to the LSA’s analysis, the original bill would have limited the potential for active management of Indiana Public Retirement System funds, which would have essentially prohibited its use of active managers and investments in private markets. The LSA report anticipated this could lead to lower investment returns, which would then force a “significant increase” in employer contributions and state fund appropriations.

However, after the bill was amended to make private market funds exempt from its provisions, a new analysis from the LSA found that the bill would cost the state’s retirement system $5.5 million over 10 years, rather than $6.7 billion.

“INPRS estimates that the changes in the bill regarding proxy voting would increase administrative costs by $550,000 per year,” the new analysis stated, “$200,000 for custom proxy voting policy and infrastructure and $350,000 to hire additional investment staff to manage proxy voting.” It also noted that the retirement system has more than 200,000 proxy votes per year and that the public pension funds bear the administrative costs for them.

The analysis also said the bill would increase workload and expenditures for state agencies involved in establishing or maintaining a public retirement or pension plan, which includes the INPRS, the state police and the state treasurer.

“The bill would significantly increase reporting and tracking requirements for public pensions and proxy votes,” the analysis said.

Kevin Brinegar, president and CEO of the Indiana Chamber of Commerce, which had opposed the original version of the bill, said the organization “is still opposed to the bill as amended.”