New Hampshire state legislators are seeking to expand their attack on ESG investing with two new proposals, including a bill that would make it a felony to "knowingly" invest state or taxpayer funds using ESG criteria that violates what legislators define as fiduciary duty.
The two bills —one in the House of Representatives and the other in the State Senate —were introduced in early January. They haven't been subject to committee hearings yet.
The proposals, each with GOP authors and co-authors, follow three other actions since the beginning of 2023 by politicians seeking to limit and discourage investments linked to environmental, social and governance criteria.
These actions included an executive order by Gov. Christopher Sununu and the state's participation as a plaintiff in a multistate lawsuit against the U.S. Department of Labor' so-called ESG rule. Also, a recent law requires the $11.1 billion New Hampshire Retirement System, Concord, to issue quarterly reports to the governor and legislature attesting that its investment strategy is "solely in the interest of participants and beneficiaries."
The newest entry from the House of Representatives, by three GOP members, said "knowingly" violating the proposed law's description of fiduciary duties is a felony punishable by up to 20 years' imprisonment.
"Executive branch agencies that are permitted to invest funds shall review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts with any regard whatsoever based on environmental, social, and governance criteria," the bill said.
The New Hampshire Retirement System "shall adhere to their fiduciary obligation and not invest with any firm that will invest state retirement system funds in investment funds that consider environmental, social, and governance criteria, as the investment goal should be to obtain the highest return on investment for New Hampshire's taxpayers and retirees," the bill said.
The bill also said the state treasurer and the pension system must make an annual report to the governor and Legislature and must describe "the existence of any investment funds that may have mixed, rather than pure, fiduciary interest investment motivations."
A note accompanying the bill from the state Treasury Department said the proposal "possibly" conflicts with "laws and executive orders directing the State Treasurer to maximize financial benefits for the State." The annual-report requirement is redundant to existing law, the Treasury Department said.
The New Hampshire Retirement System said in the note accompanying the bill that "the proposed investment restrictions could potentially reduce investment returns."
The other new bill is in the state Senate, introduced by six GOP members, said investment responsibility "does not include any action taken, or factor considered, by a fiduciary with any purpose whatsoever to further social, political, or ideological interests" beyond what is permitted by state or federal law. The proposal covers the pension system and any state unit that makes investments.
The prohibited interests include limiting investments or divesting from gun manufacturers; limiting investments or divesting from companies that don't meet environmental standards; and assessing corporate boards' governance policies on compensation, composition and employment. Other prohibited interests include reducing or disclosing greenhouse gas emissions and providing "access to abortion, sex or gender change or transgender surgery."
A note accompanying the bill from the New Hampshire Retirement System said the proposal "could result in uncertain administrative expenses tied to expanded responsibilities in establishing a compliance program to oversee investment choices and proxy voting, along with potential costs associated with portfolio divestment."
The bill contains "unclear definitions, misaligned authorities, and conflicting laws that would make it difficult to administer and implement," the pension system's note said.
The New Hampshire Retirement System's board will discuss both bills at its February meeting, Marty Karlon, a pension system spokesman, wrote in an email.
These bills join three other anti-ESG efforts already in law or in court.
Gov. Christopher Sununu, a Republican, signed a law requiring the state treasurer and the pension system's board of trustees and independent investment committee to provide quarterly reports to the governor and the Legislature showing they complied "with the duty to make all investment decisions solely in the interest of the participants and beneficiaries of the state retirement system."
The reports should describe "the existence of any investment funds that may have mixed, rather than sole, interest investment motivations," said the law, which took effect Aug. 29, 2023.
The pension system's quarterly report from Jan. 1 said it has complied with the law and "does not have investments in any funds that may have mixed, rather than sole, interest investment motivations."
The governor issued an executive order in April 2023 telling "state entities," including the pension system, to "prioritize investment returns and minimize risk in fulfillment of their fiduciary duties."
They should not make investment decisions "based on non-financial considerations (that) may include environmental, social, and governance criteria, which have shown to produce lower returns compared to investment decisions based on financial considerations alone," he said.
He warned that "the pursuit of ESG goals may result in suboptimal investments that fail to meet the fiduciary obligations that state entities investing taxpayer and beneficiary funds owe to their investors."
The governor "strongly encouraged" the pension system "to adhere to their fiduciary obligation and not invest with any firm that will invest state pension funds in funds that follow ESG criteria."
And in January 2023, Attorney General John M. Formella, a Republican, said the state had joined a coalition of 25 other state attorneys general suing the Department of Labor over a rule that would all 401(k) plan executives to use ESG criteria in selecting investments.
The DOL rule, "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights," was upheld Sept. 21, 2023, by a U.S. Court judge in Amarillo, Texas. The rule took effect 12 months ago. It provides retirement plan executives with flexibility to choose investments that used ESG or didn't use ESG criteria, wrote the judge, rejecting the states' argument that the rule mandated using ESG criteria.
The states are appealing the ruling to the 5th Circuit Court of Appeals, New Orleans, in the case of State of Utah et al. vs. Julie A. Su and the United States Department of Labor.
