The West Virginia House of Delegates on Wednesday approved legislation that would target shareholder votes on behalf of a state retirement benefit asset management board that factor in environmental and social principles, dismissing that board’s warnings the bill could cost the state millions.
House Bill 2862 would designate “environmental, social and corporate governance” as factors that aren’t to be considered in shareholder votes cast by the state Investment Management Board or fund managers it entrusts with casting such votes.
The Investment Management Board invests assets for the retirement systems of deputy sheriffs, emergency management services, judges, municipal police officers and firefighters, public employees, State Police and teachers.
The House advanced HB 2862 to the Senate in a 73-23 vote that followed an intense floor debate over corporate commitments to environmental, social and corporate governance — known as ESG.
The state Investment Management Board consists of 13 members, including the governor, auditor and treasurer plus 10 Senate-confirmed governor appointees.
State law holds the board “should be immune to changing political climates.”
“The politics of the day — right now — are what this bill is actually about,” Delegate Evan Hansen, D-Monongalia, said on the House floor Wednesday. “It’s very explicit in the bill that this is about ESG investment.”
Board executive director Craig Slaughter and board trustee Mike Hall, a former Republican state senator and chief of staff for Gov. Jim Justice, cautioned the House Judiciary Committee last month that HB 2862 could have unintended consequences.
“[I]t can have — and likely would have — a dampening effect on certain sections of our investments to perform as well as they did in the past,” Hall told the committee.
“This bill takes us down a road of trying to impose constraints on how we invest and what we invest in,” Slaughter told the committee.
Slaughter estimated that HB 2862 could cost anywhere from $500,000 to $20 million annually, conceding that the latter figure is unlikely but predicting a costly transition to board trustees having to get more involved day to day in the proxy voting process.
State Treasurer Riley Moore, a 2024 U.S. House of Representatives candidate and ardent ESG opponent, defended HB 2862, saying it aimed to “tailor in” proxy advisors.
“They’re voting for things such as diversity, equity, inclusion, LGBTQ issues, net zero [carbon emissions],” Republican Moore said. “And so those types of things we think are outside of the bounds of what maximizes benefit, what maximizes return for the beneficiary.”
ESG investing appears to provide downside protection, particularly during a social or economic crisis, and managing for a low-carbon future improves financial performance, according to an analysis of more than 1,000 research papers on links between ESG and financial performance between 2015 and 2020. The analysis was authored by asset manager Rockefeller Asset Management and the New York University Stern Center for Sustainable Business.
The House sided with Moore on Wednesday.
“We have all this information that’s being produced, conceivably misinformation, as to what makes [a] good investment that is ideologically driven,” Delegate Riley Keaton, R-Roane, said. “If we want to anchor our state’s financial decision to what is in the best interest of the shareholders, the citizens of this state, and I think that’s what we should do, I think we should pass this bill.”
Two veteran Republican delegates from Wood County, Finance Committee Chairman Vernon Criss and Energy and Manufacturing Committee Chairman Bill Anderson, spoke against HB 2862.
“I want the Investment Management Board to have the flexibility to manage and deliver the greatest return for the benefit of the pensioners of this state,” Anderson said. “I don’t have time to micromanage, from the floor of the House of Delegates, their decisions.”
Proponents of HB 2862 have touted a provision in the bill allowing the board to waive a requirement that it avoid casting any shareholder vote to further ESG and other “nonpecuniary” interests if the board can’t comply without significantly increasing costs or limiting the quality of investment options.
The Investment Management Board did not respond to a request for comment Wednesday.
Wednesday also brought votes in the majority from Sen. Joe Manchin, D-W.Va., and Sen. Shelley Moore Capito, R-W.Va., to nullify a Biden administration rule under which employee benefit plans may consider climate change and other ESG factors when making investment decisions and exercising shareholder rights.