The bill also would have restricted investments in any company that commits to any environmental standards or plans to disclose greenhouse gas emissions, or utilizes a third-party proxy voting provider, or commits to meet any kind of "corporate board, employment, composition, compensation criteria."
The Stop ESG-State funds fiduciary duty act would have provided further definitions that state funds could only consider financial purposes when making investments.
Sam Masoudi, chief investment officer of the $10 billion Wyoming Retirement System, Cheyenne, said in a webcast of the hearing that one of his major concerns is how broadly and subjectively ESG is defined in the bills.
"In some cases, it's defined so broadly here that if a company has a statement about being supportive of diversity, for instance, that might be enough to get them put on the 'Do Not Invest' list. And I think to (Rep. Nicholas') point that you brought up about Fortune 500 companies, every one of them having something that might restrict us from investing, I think I agree with that," Mr. Masoudi said.
"Earlier today, I was looking at the webpage of a very large coal company, and they have a page about their climate focus and how they're going to reduce emissions. And they disclose emissions and they're are going to get to net zero at some point — I'm not sure how a coal company would do that — but theoretically we wouldn't be able to invest in a coal company, which I'm pretty sure is not the intent of this bill," he said.
"So, I think in general if the definition is so broad it really narrows down the managers we can invest with, it's pretty likely to have some cost," said Mr. Masoudi. "It's hard to quantify that, but over the last three-and-a-half years, we have produced about $550 million of outperformance, and three quarters of that was from manager selection versus asset allocation, so anything that is going to restrict the number of managers we can select is potentially going to have a negative cost, and potentially pretty substantial."
Patrick Fleming, CIO of the Wyoming State Loan and Investment Board, Cheyenne, said in the webcast that while there would still be some money managers in which the state could invest if the bills passed, performance would be an issue.
"The problem that we have is what we term first quartile fund managers … The problem is the difference between first quartile and third quartile as of the last study I saw is a 6%, 600 basis points. Please realize that we are trying to get every little basis point for our investments. One basis point is two-and-a-half million dollars on the total fund. So when you're talking about across the board of just going from one fund manager to another fund manager, even if it's five basis points it's a significant amount of money."
The State Loan and Investment Board oversees $23.8 billion in permanent funds, as well as two non-permanent funds, which include the state's $5.2 billion in operating funds.
