Legislation in the Iowa Senate would combat environmental, social and governance (ESG) scoring regimes by ensuring that taxpayer dollars do not fund commercial boycotts that reduce economic growth, cause job losses, and shrink Iowa’s tax base.
ESG scores are essentially a risk assessment mechanism increasingly being used by investment firms and financial institutions that forces large and small companies to focus upon politically motivated, subjective goals which often run counter to their financial interests and the interests of their customers. Companies are graded on these mandated commitments to promote, for example, climate or social justice objectives. Those that score poorly are punished by divestment, reduced access to credit and capital, and a refusal from state and municipal governments to contract with them.
As SSB 1094 notes, “The general assembly is deeply concerned over the increased prevalence of investing based on social and environmental factors…rather than pecuniary factors. Therefore, the general assembly intends to ensure that state funds and funds administered by the state, including public employee retirement funds, are protected from political influence detrimental to the financial health of the state and its citizens and promote the general assembly’s goal of protecting free enterprise.”
To combat this, the bill requires companies that contract with the state to certify that they do not boycott or discriminate against companies to achieve a radically progressive political agenda.
The bill would set up a list of “scrutinized companies,” which engage in “nonpecuniary social investment on behalf of a public entity or a boycott of certain companies on behalf of a public entity.” Further, the bill states that by March 2024, “a public fund shall make its best efforts to identify or have identified any scrutinized company that the public fund has entered into a contract with to provide investment or management of securities services for the public fund” and ensure these companies are not “engaged in nonpecuniary social investment or a boycott of certain companies.”
These companies include those that engage in or do business with a company “that engages in, the exploration, production, utilization, transportation, or sale of fossil fuel-based energy, timber, mining, or production agriculture,” and those that engage in or do business with a company “that engages in, the manufacturing, distribution, sale, import, export, or lawful use of firearms, firearm parts, firearm accessories, or ammunition.”
The bill also restricts state public funds from contracting for investment or management of security services from any company on the state’s scrutinized list or “if the company would engage in nonpecuniary social investment or a boycott of certain companies on behalf of the public fund.”
Hawkeye State lawmakers would be well advised to understand the impact that ESG investing has not only on its pensioners but on the very industries that are central to Iowa’s economy. As Heritage Action for America notes, these institutions are targeting key Iowa industries like food production and agriculture, by “pushing companies to go green by promoting lower-carbon alternatives to meat and dairy products, targeting fertilizer use, and electrifying farm machinery.” Recent reports are showing with greater clarity the effect such principles and guided investments will have on key sectors such as agriculture. Iowa—producer of one-eleventh of the America’s food supply, and the nation’s largest producer of corn, eggs, and pork, to cite just some examples—would disproportionately bear the high costs of this agenda.
Critics of anti-ESG legislation have charged that bills such as Iowa’s SSB 1094 distort the free market and could possibly lower a state’s credit rating. However, the true distortion is being perpetrated by those seeking to use the financial agencies as a de facto governmental regulator. By allowing ESG to gain a foothold in Iowa, Hawkeye State legislators would be perpetuating this distorted marketplace, and nothing in the bill forces Iowa fiduciaries to use uneconomical investment options.
The collusion of corporations and institutions to boycott, divest from, or sanction any industry only hurts Iowa consumers and shareholders and could affect the long-term economic health of the state’s economy. By clarifying the fiduciary duties of Iowa’s pension fund managers by ensuring state funds don’t go to entities participating in and funding commercial boycotts, and by insisting that maximizing the return on investment for clients be their only guiding principle, Iowa legislators can help ensure the long-term fiscal health of both the Hawkeye State’s pension systems and economy as a whole.
The following documents provide more information about ESG.
Environmental, Social, and Governance (ESG) Metrics: A Basic Primer
This Heartland Institute Policy Brief provides a high-level overview of ESG metrics and their associated negative impacts upon society.
Environmental, Social, and Governance (ESG) Scores: A Basic Primer
This Heartland Institute PowerPoint presentation explains precisely what ESG is, how it affects society, its impact upon and relationship to certain industries, and what can be done to stop it.
ESG: A Simple Breakdown of its Components
This Heartland Institute Policy Tip Sheet provides a brief description of each of the three categories comprising a company’s risk assessment based upon ESG metrics, using one of the most commonly used ESG frameworks developed by the International Business Council.
ESG: The Role of the U.S. Securities and Exchange Commission
This Heartland Institute Policy Tip Sheet offers a brief description of the role of the U.S. Securities and Exchange Commission in coercing companies into ESG compliance.
ESG: The Effects Upon Free Markets
This Heartland Institute Policy Tip Sheet offers a brief description of how ESG systems fundamentally alter free markets and the natural equilibrium of supply and demand.
ESG: Primary Architects and Implementers
This Heartland Institute Policy Tip Sheet discusses the actors behind ESG, and how they work hand in glove to coerce ESG compliance.
ESG: Negative Effects on Food Supply and Agriculture
This Heartland Institute Policy Tip Sheet provides a brief summary of how ESG is being weaponized against farmers, food production, and the agricultural industry as a whole.
ESG: Central Bank Digital Currencies
This Heartland Institute Policy Tip Sheet provides a brief summary of central bank digital currencies and how they can be wielded against society to enforce ESG compliance.
ESG: The Banking Industry
This Heartland Institute Policy Tip Sheet briefly summarizes how the banking industry has used its coercive market power to weaponize ESG compliance.
ESG: Financial Discrimination
This Heartland Institute Policy Tip Sheet discusses financial institutions’ discriminatory practices against consumers, and explains proposed solutions to the problem.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit The Heartland Institute’s main website, Heartland’s webpage devoted to ESG, and Heartland’s Stopping Socialism website.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Heartland’s Government Relations department, at [email protected] or 312/377-4000.
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
