Bonds

Kansas bill to prevent ESG use in contracts and investments becomes law

A bill prohibiting the use of environment, social, and governance criteria for government investments and contracts in Kansas became law this week without the signature of the governor, who raised concerns about the measure.

Citing “reservations about the potential unforeseen consequences of House Bill 2100 for the state and for local governments,” Democratic Gov. Laura Kelly said she allowed the measure’s enactment without signing it.

State Treasurer Steven Johnson, a supporter of the bill that passed the Republican-controlled House and Senate earlier this month, pointed to “a broad consensus” that ESG criteria should not replace traditional fiduciary principles in deciding how taxpayer money is spent and invested. 

“This bill will ensure that public dollars — particularly our state pension fund — are invested in ways that produce the highest possible returns with the lowest acceptable risk, and that public contracts are awarded to the entities best-qualified to fulfill them,” he said in a statement.

HB 2100 evolved from two other measures that were the subject of March legislative hearings where the head of the Kansas Public Employees Retirement System (KPERS) warned they could cause about $1.14 billion in losses due to fiduciary definitions that would disqualify its current investment managers and force divestment from positions they manage.

KPERS Executive Director Alan Conroy called the final version of the bill “workable.”

“The negative potential KPERS investment impact of the earlier versions of the proposed ESG legislation have been addressed,” he said in an email Wednesday. 

The Kansas Public Investments and Contracts Protection Act subjects KPERS’ investment managers, proxy advisors, and contractors to the same fiduciary duties as its board of trustees and requires the consideration of only financial factors when discharging those duties, according to a legislative conference committee report on the bill. KPERS will be prevented from investing or reinvesting any money for ESG purposes. 

For state and local government contracts, the act prohibits giving preferential treatment to or discriminating against a company based on whether it meets or fails to meet EGS criteria, the report said. The law defines that criteria to include the fossil fuel, nuclear energy, agriculture, lumber, mining, and firearm industries, as well as environmental and diversity standards, and access to abortion or gender reassignment services. 

Anti-ESG bills were introduced in several states this year. In the Southwest region, governors in Arkansas and Utah enacted laws to cease doing business with companies or financial services providers that “boycott” specific industries, including fossil fuels and firearms.

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