Research & Commentary: Anti-ESG Bill in Georgia Will Ensure Peach State Pension Funds Invested Appropriately

Published January 25, 2024

Legislation in the Georgia Senate would combat environmental, social and governance (ESG) scoring systems and ensure state pension funds are invested solely to achieve the maximum return on investment for pensioners, rather than advancing social or political causes that may likely lead to lower returns and financial underperformance.

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 and reduced access to credit and capital.

To combat this, the bill states that a fiduciary, “with regard to the investments and assets of a retirement system…shall discharge its duties…solely in the interests of plan participants and their beneficiaries for the exclusive purpose of providing benefits to plan participants and their beneficiaries and…shall not subordinate the interests of the participants and their beneficiaries or sacrifice investment returns or accept increased investment risks in the promotion of any nonpecuniary interests.” These nonpecuniary interests would be anything with the goal of furthering “any social, political, or ideological interests.”

As Heritage Action for America notes, “using asset managers that engage and vote shares based on ESG can reduce the value of pension fund assets over the long-term. For example, [the world’s largest investment firm] Blackrock has voted against directors for failing to set emissions reduction targets or for increasing exposure to fossil fuel assets such as coal. In 2020, Blackrock voted against the directors of a utility for increasing its exposure to coal related assets, even though such exposure would no doubt have been financially beneficial. Such actions prevent companies from making money during periods when being anti-ESG is profitable. Over time, this will reduce the value of pension fund assets.”

The bill further provides that proxy voting must be directed or exercised by a representative of the fiduciary in accord with the provisions of this law. Currently, only two firms—Institutional Shareholder Services (ISS) and Glass Lewis—control 97 percent of the proxy advisory market and have stridently committed to ESG principles.

ISS and Glass Lewis are currently under scrutiny by several state attorneys general for collusion and antitrust violations.  

Critics of anti-ESG legislation have charged that bills such as this 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 de facto governmental regulators. By allowing ESG to gain a foothold in Georgia, Peach State legislators would be perpetuating this distorted marketplace, and nothing in the bill forces Georgia fiduciaries to use uneconomical investment options.

By clarifying the fiduciary duties of Georgia’s pension fund managers, and by insisting that maximizing the return on investment for clients be their only guiding principle, Peach State legislators can help ensure the long-term fiscal health of the state’s pension systems and make sure that promises proffered to state pensioners will be kept.

Environmental, Social, and Governance (ESG) Scores: A Threat to Individual Liberty, Free Markets, and the U.S. Economy

This policy paper by Heartland Institute research fellow Jack McPherrin provides a comprehensive overview of ESG and proposes specific policy recommendations to counteract ESG’s insidious influence.

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: Financial Discrimination

This Heartland Institute Policy Tip Sheet discusses financial institutions’ discriminatory practices against consumers, and explains proposed solutions to the problem.

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: Central Bank Digital Currencies

This Heartland Institute Policy Tip Sheet provides a brief summary of central bank digital currencies (CBDCs) and how they can be wielded against society to enforce 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: 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: 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 (SEC) in coercing companies into ESG compliance.

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 Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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