Bill addressing use of ESG in investments goes to governor

RALEIGH — A bill addressing environmental and social governance (ESG) has passed both houses of the General Assembly and was sent to Democratic Gov. Roy Cooper on June 14.

ESG is "a set of standards for a company's behavior used by socially conscious investors to screen potential investments," as defined by Investopedia.com.

The governor has 10 days to sign the bill or let it become law without his signature.

House Bill 750, Address ESG Factors, was filed earlier this session by Reps. Destin Hall (R-Caldwell), Jason Saine (R-Lincoln), Celeste Cairns (R-Carteret), and Neal Jackson (R-Randolph).

Under the bill, state entities would be prohibited from creating or using ESG criteria or economically targeted investments (ETI) requirements when making employment decisions.

The measure would also require the state treasurer to only consider pecuniary factors when evaluating an investment or evaluating or exercising any right appurtenant to an investment. Additionally, a provision in the bill bars the use of ESG criteria when hiring, firing or evaluating state employees.

The state treasurer would be allowed to "reasonably conclude that not exercising a right appurtenant to an investment is in the best interest of the fund's beneficiaries."

The bill passed the House on May 3 by a vote of 76-41 with some Democratic support that included favorable votes by Reps. Cecil Brockman (D-Guilford), Francis Jackson (D-Cumberland), Ray Jeffers (D-Person), Shelly Willingham (D-Edgecombe), and Michael Wray (D-Northampton).

The Senate passed the bill on June 13 by a vote of 29-18 with no Democratic support.

State Treasurer Dale Folwell gave his support to the bill in a June 3 statement.

"I enthusiastically support this bill," Folwell said. "As keeper of the public purse my duty is to manage our investments to ensure that the best interests of those that teach, protect and serve, as well as of our retirees, is always our focus. I appreciate the leadership and courage demonstrated by the bill's sponsors and supporters. They have once again shown that their concern is always for the hard-working public servants who deserve to have their pension invested with returns in mind, not politics. There is no red or blue money at the treasurer's office, only green."

In his statement, Folwell singled out Sen. David Craven's (Randolph) as being "absolutely key" to moving the legislation forward in the Senate.

"No state employee or business should be disqualified from a promotion or contract because they aren't committed to ESG and all the politics that come with it," Craven said. "This bill will prevent the state from making ESG-driven business decisions, and instead have the focus be on merit and maximizing returns."

Last December, when asked about ESG investment practices and if ESG was represented in the state's pension plan, Folwell told North State Journal, "We don't have any ESG Investments inside the pension plan."

ESG practices have seen significant pushback as driving an ideological and political agenda nationwide from Republican state treasurers and attorneys general in the past year. The pushback has resulted in legislation by numerous states, a move that has been opposed by a collection of 13 Democratic treasurers and comptrollers.

Both Louisiana and Missouri have already taken action to divest from ESG practices employed by big investing groups such as BlackRock and Vanguard. In December 2022, Florida's CFO Jimmy Patronis announced the state would be divesting $2 billion worth of assets currently managed by BlackRock.

Folwell had called for Blackrock's CEO Larry Fink to resign "or be removed" over his ESG policies in a statement on Dec. 9, 2022. The statement noted that North Carolina Retirement Systems (NCRS) had approximately $14 billion invested through BlackRock in various active but mostly passive funds. Around $55 million was passively invested in BlackRock stocks or bonds, according to that statement.

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