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LITTLE ROCK, Ark. – An Arkansas senator introduced a bill Wednesday aimed at preventing hedge fund managers from considering a progressive-back set of criteria referred to as ESG when managing client funds.
Republican Sen. Tom Cotton’s Ensuring Sound Guidance Act would require investment managers and retirement plan sponsors to consider the maximum return and minimum risk without considering non-financial factors such as a company’s use of fossil fuel.
The ESG criteria Cotton’s measure seems to push back against fall into the areas of environmental, social, and corporate governance, a method of investing that considers investments environmental and social impacts, as well as issues with how the company is governed, including areas of executive pay and employee relations.
Impact on Savings and ESG Scams
Cotton is the Senate bill’s primary sponsor and is joined by six cosponsors. The junior Senator from the Natural State believes his bill will prioritize returns for Americans savings over what he called “ESG scams.”
“Investment funds like Blackrock that millions of Americans’ trust with their hard-earned savings should prioritize investments that result in the highest returns—not fund ESG scams,” Cotton said. “My bill will make sure investment fund managers are making the best financial decisions on behalf of their clients.”
Companion Legislation and Protecting Investors
Rep. Andy Barr (R-Kentucky) echoed Cotton’s comments in introducing companion legislation in the House.
“We must take significant action to protect retail investors and retirees from the cancer within our capital markets that is ESG, which prioritizes higher-fee, less diversified and lower return investments,” Barr said.
The bill would update national investment law to require the Comptroller General of the United States to investigate state and local pension plans to determine if they are impacted by ESG policies.
Arkansas Legislature and Act 411
The Arkansas legislature passed in its most recent session an ESG-focused bill to make sure Arkansas does not invest funds, such as its retirement funds, with financial service providers that discriminate against the energy, fossil fuel, ammunition and firearms industries.
Act 411 will go into effect Aug. 1 and creates an ESG Oversight Committee that will create a list of financial services providers that if finds discriminate against energy, fossil fuel, firearms or ammunition companies and present the list of companies to the governor.
The Arkansas treasurer would also be required to maintain a list of financial service providers as determined by the ESG Oversight Committee on the state treasurer’s website under the bill.
