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Last week, the House majority introduced legislation that would restrict Iowa public agencies from investing in capital, based on retirement investor preferences for environmental, social, and governance (ESG) factors.

In today’s business environment, asset managers are applying non-financial factors to help identify material risks and substantial growth opportunities that would maximize Iowans’ retirement funds. ESG metrics are not mandatory, though many companies choose to consider and disclose these factors in their annual reports.

Some ESG capital investment factors include:

  • Air and water pollution mitigation, energy efficiency, and water scarcity;
  • Customer satisfaction, wages and benefits, supply-chain management, data protection and privacy, employee engagement, and labor standards; and
  • Audit committee structure; executive bribery and corruption; oversight and compliance.

Republican state lawmakers across the nation are boosting efforts to prohibit state governments from doing business with companies that consider the above factors in their business model, which is estimated to cost states millions. Last year, Florida, Kentucky, Louisiana, Missouri, Oklahoma, West Virginia, and Texas proposed or passed legislation prohibiting state government entities from doing business with financial firms that use ESG when making investment decisions.

A national study on limiting investment options estimated states could pay between an additional $264 and $708 million in interest payments. Additionally, Wharton School of Business found that after passing legislation restricting the market, Texas’ interest rates drastically increased as banks were forced out of state; and lending competition drastically decreased, which increased state taxpayer costs. Since January 2021, out-of-state corporate special interest groups have been coordinating with state lawmakers to propose anti-ESG
model legislation.

Currently, Iowa public entities and private businesses have the choice to invest in companies that consider some ESG factors when determining pension fund investments. Iowa House Democrats will continue to trust Iowa public employees with their investment preferences for retirement planning and not interfere with the free market.

Author: Sue Cahill


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