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Bill would keep ESG considerations out of MT's investing decisions

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The Montana State Capitol

The Montana State Capitol in Helena on Wednesday, Jan. 4, 2023.

A bill moving through the Montana House would prohibit the state from making investment decisions based on environmental, social and governance philosophies of companies and funds, a framework often abbreviated as ESG.

Gov. Greg Gianforte’s administration is backing House Bill 228, and the Republican gave a shout-out to the issue during a press conference last week.

“Activist woke capitalism through ESG investing is trending on Wall Street,” Gianforte said in prepared remarks Friday. “ESG prioritizes climate change and social justice ahead of maximizing returns. It puts stakeholders ahead of shareholders.”

The three-letter acronym has become a four-letter word within conservative news outlets, blamed for divestment strategies that have moved portfolios away from socially controversial or environmentally problematic companies and sectors. Nationally, some institutional investors have opted to sacrifice potential returns for more values-based investing, a departure from only making decisions based on the bottom line.

Supporters of the ESG approach have also noted that many of those decisions, like divesting from coal, can align with smart long-term investment decisions. But it's earned the ire of those losing investors over the new investing strategies, such as firearms manufacturers or carbon-intensive companies.

The latter industry lined up in support of the bill last week, with proponents including the Montana Petroleum Association and the Treasure State Resources Association.

But one of the bill’s opponents, Derf Johnson with the Montana Environmental Information Center, pointed out that the bill’s requirement that the board must use “only pecuniary factors” may fly in the face of the governor’s desire to dump the state's Russia-linked assets after war broke out in Ukraine last year.

“The State of Montana is reviewing assets and operations that may benefit Vladimir Putin, his cadre of profiting oligarchs, and his vicious war machine,” Gianforte wrote in a social media post last February.

At the time, Board of Investments Executive Director Dan Villa said the state’s divestment of roughly $14 million in such assets was more a matter of financial prudence than political statement.

“There are times when we as a society recognize that there are institutions that are problematic, that are making decisions,” Johnson said. “And we don’t want to be associated with them. Modern slavery is one example.”

In a back-and-forth with one of the committee’s members, bill sponsor Rep. Terry Moore, a Billings Republican, indicated the board could only sever ties with those types of investments based on dollars and cents.

“They could assess whether, given the circumstances and the situation that is at hand, would it be in the best interest financially, on behalf of Montanans, to divest,” Moore said. “But the criteria would be based on a financial criteria, not on an ESG-like” criteria.

Villa, who testified in support of the bill, previously told the House State Administration Committee that the bill would mainly codify existing practice with the state’s investment pools. He even brought a visual prop to the Jan. 12 meeting, a small model of a rail tank car representing the “hundreds of oil tanker cars” the state’s massive pension fund currently owns.

“As we view it, we go where the money is,” Villa said. “... We don’t get into, ‘Do you buy oil, do you not buy oil? Do you boycott this, do you not boycott that?’ We get into ‘What is your investment thesis?’”

The Montana House Judiciary Committee voted 13-6 in favor of House Bill 228 on Tuesday, with all Republicans supporting it.

“Really all it says is that it is codifying investment policy for the state of Montana, that we’re going to only consider pecuniary factors,” Rep. Neil Durham, R-Libby said.

Rep. S.J. Howell of Missoula was among the Democrats opposing the bill.

“I think this unnecessarily ties the hands of the state to respond to unusual but important situations, like Russia invading Ukraine,” they said.

It now heads to the full House floor for consideration.

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