New Ohio Senate bill bars state funds from investing based on environmental, social or governance practices

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COLUMBUS, Ohio – A new Ohio Senate bill would prohibit investment managers of several state funds – including the five pension systems – from choosing investments with the primary purpose of influencing social, environmental or corporate governance.



The Ohio Statehouse on Capitol Square in downtown Columbus. The capitol houses the Ohio General Assembly, which consists of the House of Representatives and the Senate.


© David Petkiewicz cleveland.com/cleveland.com/TNS
The Ohio Statehouse on Capitol Square in downtown Columbus. The capitol houses the Ohio General Assembly, which consists of the House of Representatives and the Senate.

E.S.G. investing is an approach in which investment managers choose companies or funds that are not just expected to make money but are also expected to achieve goals that could help – or at least minimize the harm – to society. They consider companies’ and funds’ policies affecting the environment and climate. Social goals include how a company treats its employees, suppliers and customers. Governance policies require an examination of corporate leadership, executive pay, shareholder rights and internal controls. One estimate put E.S.G. assets at $30 trillion in 2020.

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While CalPERS, the California Public Employees’ Retirement System, the nation’s second largest retirement fund, has E.S.G. goals, many conservative politicians have maligned the approach. In Florida, Gov. Ron DeSantis, who called E.S.G. “woke,” announced new anti-E.S.G. measures last week for his state’s investment funds.

In Ohio, Senate Bill 6 is sponsored by Sen. Kirk Schuring, a Canton Republican, and affects the following funds:

-The Bureau of Workers’ Compensation

-All funds held by public colleges and universities

-The Ohio Public Employees Retirement System, known as OPERS, which is the 14th largest public pension in the U.S., with $122 billion in assets under management, according to Pensions & Investments’ list of the 1,000 largest retirement funds of 2022.

-The State Teachers Retirement System, or STRS, which is the 27th largest pension in the country, with $95 billion

-The Ohio Police and Fire Pension Fund, or OP&F, which is the 151st largest in the country, with $18 billion

-The School Employees Retirement System, or SERS, which is the 155th largest, with $17.9 billion

-The State Highway Patrol Retirement System, SHPRS, with $1.1 billion. It didn’t make Pensions & Investments’ list.

None of the funds affected by SB 6 currently have any E.S.G. goals, and Schuring said he would like it to remain that way.

The bill specifies that the boards that govern each fund “shall not adopt a policy, or take any action to promote a policy, under which the board makes investment decisions with the primary purpose of influencing any social or environmental policy or attempting to influence the governance of any corporation.”

“It’s a very simple bill,” Schuring said. “It just emphasizes the importance that the sole purpose of public investments are to maximize the return on investment for the beneficiaries, those who the investments will benefit, and not solely or primarily for influencing any social or environmental policy, or any attempts to influence governance. I’ve written it in such a way that prudent investment standards are still part of what our public investments have to adhere to. It’s just safeguards.”

The bill is expected to receive a full set of hearings in a Senate committee, said John Fortney, a spokesman for Ohio Senate President Matt Huffman, a Lima Republican.

Fortney took a different tone in defense of the bill, calling E.S.G. a “well-funded effort by foreign extremists to force dangerous globalist platforms into corporate boardrooms with a goal of undermining sound fiscal policies and the American economy,” he said in an email. “Your retirement account should be solely focused on making money, rather than appeasing the radical Davos agenda of entitled elitists.”

Davos is a town in Switzerland that hosts each January the World Economic Forum, a gathering of investors, academics, celebrities and business, political and religious leaders. The forum includes discussions on large, global issues, such as climate change, the global economy and war and conflict. Critics call it “elitist.”

Case Western Reserve University law professor Anat Alon-Beck, who researches corporate law and governance – specifically the number of women on corporate boards as part of E.S.G— said that Ohio has large pension funds that can influence businesses for the better. She opposes SB 6.

“When an institutional investor, a fund manager, talks to a company, they will listen because they need their investments. It’s really about, ‘Hey, wait a minute, you can’t just pretend you live in a vacuum. You also have responsibilities because you are managing our money.’ And they’re doing it for the long term. When they invest in those funds, they’re not a short seller. They’re not going to sell in a day. They’re investing in the long term. Long term means you need to take other things into account – society, future generations, what we’re leaving for our kids,” she said.

There is evidence that some E.S.G. funds beat the market, noted Victor Flatt, a Case Western Reserve University environmental law professor.

Flatt doesn’t see Ohio’s bill really changing much. He said that the key words in the bill are that Ohio funds can’t make investment decisions with the “primary purpose” of influencing E.S.G.

Flatt said that all investors, even those with E.S.G. objectives, need to make money, Flatt said.

Federal laws require investors to make decisions with the goal of making clients money as well, he said.

“Almost all state pension funds – and I can’t think of an exception to this – require investments to focus on the rate of return and that the board members and investors have a fiduciary relationship to the public that’s seeking to benefit, like the retirees,” he said.

If an Ohio fund manager sees an opportunity to make retirees, colleges or the BWC money, under SB 6 they will continued to be allowed to choose that investment, even if the investment is also favored by those with E.S.G. goals, Flatt said.

One provision that’s new in Ohio’s bill, which Flatt said he hasn’t seen in other state bills – Arkansas, Texas, Missouri, Oklahoma and South Carolina have anti-E.S.G. legislation under consideration – is the prohibition on influencing corporate governance.

That could cause the Ohio funds problems, he said.

“Let’s say I own 20% shares in Chevron. I want my shares to do well, and I think certain policies that the company has are depressing the stock price,” he said. “Then I may want to introduce resolutions or other things to change those policies — and that’s regardless of E.S.G. What the Ohio bill does in the last sentences of each new section is say they can’t try to influence corporate governance. And that’s odd to me.”

The funds affected by SB 6 are not the ones that Ohio Treasurer Robert Sprague manages. Although, he, too, is no fan of E.S.G., repeating concerns of academics and others that many companies and funds are just “greenwashing” or making simple, irrelevant changes to appear environmentally friendly.

“ESG remains grossly ill-defined, subjective, and the perfect target for exploitation, especially when investing other people’s money to advance a political agenda,” said Sprague’s spokeswoman Brittany Halpin. “The Treasurer’s office is focused on its core investment objectives – which are the safety of principal, preservation of liquidity, and yield – and believes radical, risky, and politicized investment strategies of any kind have no place in the state portfolio.”

Laura Hancock covers state government and politics for Cleveland.com and The Plain Dealer. Read more of her work here.

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