The bill would also restrict investment in any company that adheres to any environmental standards, or plans to disclose its greenhouse gas emissions, or uses a third-party proxy voting service provider, or undertakes to comply with any “corporate rules, employment, composition, compensation.” criteria.”
The Stop ESG Public Funds Fiduciary Responsibility Act would include additional definitions that state funds can only consider financial purposes when making investments.
Sam Masudi, chief investment officer of the $10 billion Wyoming Retirement System in Cheyenne, said during a webcast of the hearing that his biggest concern is how broadly and subjectively ESG is defined in bills.
“In some cases, it is defined so broadly here that, for example, if a company has a statement of support for diversity, that may be enough to place it on the Do Not Invest list. And I think (rep. Nikolai) that you mentioned the Fortune 500 companies, each of which has something that can prevent us from investing, I think I agree with that,” Mr. Masudi said.
“Earlier today I was browsing the web page of a very large coal company and they have a page about their climate work and how they are going to cut emissions. zero at some point – I’m not sure how the coal company will do it – but in theory we won’t be able to invest in a coal company, which I’m pretty sure is not the goal of this bill,” he said. .
“So, I think in general, if the definition is so broad that it really narrows down the pool of managers that we can invest with, it’s likely that there will be some costs involved,” Mr. Masudi said. “It’s hard to quantify, but over the past three and a half years we’ve achieved approximately $550 million in excellence and three-quarters of that has been manager selection, not asset allocation, so anything that can limit the number of managers we can choose , will potentially have a negative cost, and potentially quite significant.”
Patrick Fleming, CIO of the Wyoming Board of Credit and Investment, Cheyenne, said in a webcast that while there will still be some money managers the state could invest in if the bills are passed, productivity will be an issue.
“The problem we have is what we call first quartile fund managers… The problem is that the difference between the first quartile and the third quartile as of the last study I saw is 6%, 600 basis points. Please understand that we are trying to get every small basis point for our investment. One basis point equals $2.5 million for the entire fund. So when you talk about moving from one fund manager to another, even if it’s five basis points, it’s a significant amount of money.”
The State Board of Credit and Investment oversees $23.8 billion in permanent funds, as well as two non-permanent funds, which include $5.2 billion in state operating funds.