Michigan bill would ban public retirement systems from ESG investing

On its face, Michigan Senate Bill 1192 is full of arcana and financial terminology. But the 14-page bill was offered with one clear invent: Prevent the state’s retirement systems from ESG investing.

No bill can mandate whether the stock market will go up or down. But Senate Bill 1192 targets the values system that is the hallmark of the ESG — environmental, social, governance — framework, which relies on a host of non-financial factors in its investment decisions.

As Joshua Antonini wrote for CapCon in his primer on ESG:

When the firms which score companies on ESG metrics define the correct stance on any of today’s contentious social issues, they undermine this country’s democratic principles. How can people of different ideas and beliefs organize in the public square if financial institutions will shut down their accounts for having the wrong beliefs?

ESG investing considers companies not by their financial performance or opportunity for growth, but rather for their environmental, social and governance goals and policies.

It’s these non-financial standards the bill, introduced by State Sen. Jim Runestad, R-White Lake, would ban the state’s retirement systems from considering. Runestad’s bill, if passed into law, would amend a portion of the Public Employee Retirement System Investment Act of 1965.

The bill would allow state retirement systems to “consider only pecuniary factors in the evaluation of an investment.”

Pecuniary factors are defined as “a factor that the investment fiduciary has determined would have a material effect on the risk or return of an investment based on appropriate investment horizons consistent with the funding objective of the system” in the bill.

It continues: “‘Material effect’ does not include an effect that primarily furthers nonpecuniary, noneconomic, or nonfinancial social, political, or ideological objectives.”

Runestad introduced the bill on Sept. 28, and it was referred to the Senate Committee on Finance.