In this week’s edition of Economy and Society:
- Indiana pension board removes assets from BlackRock’s management
- Ohio House passes bill prohibiting ESG in public pensions
- California to delay full enforcement of emissions reporting law
- Court rules against Nasdaq diversity rule
- Citigroup trims ESG jobs
In the states
Indiana pension board removes assets from BlackRock’s management
What’s the story?
The Indiana Public Retirement System’s trustees voted last week to stop using BlackRock for asset management services. The board is considering three firms as replacements: State Street, UBS, and Northern Trust.
Why does it matter?
Indiana Treasurer Daniel Elliott (R) argued in August that BlackRock’s ESG commitments made the firm ineligible for contracts under the state’s 2023 anti-ESG law. Elliott said he believed ESG compromised pension fund returns, and the alternative managers would invest the state’s pension funds more effectively.
All three potential replacements are on boycott lists in at least one other state for ESG commitments.
What’s the background?
For more on the 2023 Indiana law, see here.
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According to the Indiana Capital Chronicle:
“Today, I and other INPRS board members voted to put Hoosier public servants first by rejecting BlackRock and woke corporate policies,” said Treasurer Daniel Elliott. “As Treasurer of State, I led the charge against ESG and other non-fiduciary policies that harm workers force that put Hoosier public employee pensions at risk.”
Friday’s vote was to determine that there are service providers comparable to BlackRock for custom, passive investment management services of global inflation-linked bonds within the INPRS Defined Benefit Plan.
“Today’s decision by the Indiana Public Retirement System (INPRS) clearly showed the culture-war politics of outside influences – not their fiduciary duty – was the driving motivation behind a board vote that arbitrarily put political winds ahead of the pension’s financial performance,” Elliott said.
Ohio House passes bill prohibiting ESG in public pensions
What’s the story
The Ohio House passed a bill last week that would prohibit ESG considerations in state public pension and college and university endowment fund investments. The state Senate passed the bill last May. It now goes to the desk of Gov. Mike DeWine (R) for consideration.
Why does it matter?
If Gov. DeWine approves the bill, Ohio will join 14 other states that have legislation limiting ESG considerations in state investments based on fiduciary requirements. It would also be the first major anti-ESG legislation enacted in Ohio.
What’s the background?
For more on state laws restricting the use of ESG in public investments, see here.
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According to Chief Investment Officer:
The bill cites the fiduciary duty of the governing boards of the pensions, compensation bureau and endowments and requires them to “make investment decisions with the sole purpose of maximizing the return on its investments.”
It goes on to order that each of the named funds’ boards “shall not adopt a policy, or take any action to promote a policy, under which the board makes investment decisions with the primary purpose of influencing any social or environmental policy or attempting to influence the governance of any corporation.” …
The restrictions will apply to the Ohio Public Employees Retirement System ($106.5 billion assets under management), the Ohio Police & Fire Pension Fund ($18.90 billion), the State Teachers Retirement System of Ohio ($97 billion), the School Employees Retirement System of Ohio ($19 billion) and the Ohio Highway Patrol Retirement System ($1 billion).
California to delay full enforcement of emissions reporting law
What’s the story?
The California Air Resources Board announced last week that it will delay full enforcement of the state’s emission reporting law. Enforcement was set to begin in 2026, but the board will not penalize companies for incomplete reports that year as long as they act in good faith in the board’s view.
Why does it matter?
California’s law sets standards that have drawn criticism from groups, including the U.S. Chamber of Commerce, which filed a lawsuit Jan. 30 challenging the requirements. If the law is upheld, it will require large companies doing business in California (with over $1 billion in revenue) to report on Scope 1, Scope 2, and Scope 3 emissions by 2027. Critics argue the law creates a de facto national emissions disclosure requirement.
What’s the background?
For more on the California law and previous legal challenges, see here.
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According to ESG News:
California has delayed full enforcement of its climate reporting requirements, originally set to begin in 2026. The California Air Resources Board (CARB) announced it would use “enforcement discretion,” allowing companies more time to implement systems for Scope 1 and Scope 2 emissions reporting.
The legislation, Senate Bill 253, mandates that companies with over $1 billion in revenue disclose direct (Scope 1) and electricity-related (Scope 2) emissions by 2026, and broader value chain (Scope 3) emissions by 2027. Senate Bill 261 requires biennial climate risk reporting for companies with revenues above $500 million.
On Wall Street and in the private sector
Court rules against Nasdaq diversity rule
What’s the story?
The Fifth Circuit Court of Appeals ruled last week that the Securities and Exchange Commission (SEC) was wrong to approve the Nasdaq stock exchange’s 2021 rule establishing diversity requirements for all listed companies. The court agreed with the plaintiffs who alleged the SEC overstepped its legal authority in approving the rule.
Why does it matter?
Nasdaq argued the diversity rule showed the exchange was a leader in ESG investment strategies. The SEC, which has regulatory jurisdiction over exchanges, approved the rule, drawing anti-ESG opposition.
The ruling against the SEC continues a legal trend limiting the scope of federal ESG regulation.
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According to the Wall Street Journal:
Nasdaq’s diversity rules had put it at the forefront of ESG. One rule required Nasdaq-listed companies to disclose statistics about the gender and racial makeup of their boards. The other rule—which was being phased in over several years—required companies to meet certain minimum targets for diversity, or explain in writing why they hadn’t done so.
In its ruling, the Fifth Circuit sided with two conservative groups that sued the SEC for approving Nasdaq’s proposed diversity rules in 2021. The groups argued that Nasdaq’s diversity targets amounted to an unlawful quota. They sued the SEC in its capacity as the stock exchange’s regulator.
The SEC “has intruded into territory far outside its ordinary domain,” Judge Andrew Oldham wrote in the ruling, writing on behalf of a majority of the Fifth Circuit.
Citigroup trims ESG jobs
What’s the story?
Citigroup last week laid off a group of research analysts focused on ESG, including Jason Channell, the head of sustainable finance for Citi Global Insights. The cuts were part of broader job cuts at the company.
Why does it matter?
ESG has faded in popularity among American investors over the last several years. If the trend continues, ESG research groups face elimination or reduction.
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According to Bloomberg:
The analysts had published reports on topics such as climate, renewable energy, biodiversity and carbon markets. Citigroup, which still employs analysts in other departments that focus on ESG, didn’t charge clients for the research produced by the analysts whose jobs were cut. Other researchers that focused on separate topics were also let go.
A spokesperson for Citigroup said the bank is committed to supporting its clients “in their sustainability journeys” and to reaching the firm’s own net-zero and sustainable financing goals, while declining to comment on personnel matters.