Kansas legislators struggle to thwart 'woke' ESG investment by state

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Republican lawmakers pushing to prevent Kansas from investing its funds using socially and environmentally conscious principles disagree about also imposing rules for investment managers handling private funds, complicating their efforts to thwart what they see as "woke" investing.

Committees in the Kansas House and Senate this week approved competing versions of anti-ESG legislation, and the two chambers could debate them as early as next week. ESG stands for environmental, social and governance and those considerations have become more prominent in investing in recent years, sparking a nationwide backlash from conservative Republicans.

The Kansas Senate's version of the anti-ESG measure would require private money managers to get their clients' written consent before investing their funds along ESG principles. The House bill contains no such provision.

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The issue of requiring managers of private funds to disclose their ESG activities to clients or to get clients' verbal or written consent to use them appears to be the last major sticking point among Republicans in the GOP-controlled Legislature. They've already backed off the toughest version of the anti-ESG legislation because of opposition from powerful business groups, and have rewritten both bills to prevent projected investment losses of $3.6 billion over 10 years for the pension fund for Kansas teachers and government workers.

A desire to thwart ESG investing has some Republicans breaking with the party's longstanding aversion to tougher business regulations.

"We have labels on our food," said state Rep. Michael Murphy, a Republican from rural south-central Kansas who backed the strongest anti-ESG legislation. "We could look at it and say, ‘Well, I don’t want that, and I’ll take this over here.' It allows you to make that choice, and that's all this is."

Republican Kansas Attorney General Kris Kobach is one of the many state officials caught up in an intense debate over the future of ESG regulation. (AP Photo/John Hanna)

Supporters of ESG principles argue that they're not about investment managers boycotting industries such as oil production. Instead, they encourage being more comprehensive about assessing investment risks, such as whether concerns about climate change make green energy more attractive and fossil fuels less so. They also argue that Republicans have turned ESG into a culture war issue to keep the GOP's conservative base riled up.

In Kansas, Democrats argue that anti-ESG legislation is unnecessary because state law already requires its managers to work to get the maximum investment returns possible. They also worry that even if the final legislation focuses on the investment of state funds, its provisions will be broad enough to handcuff cities and counties if, for example, they want to purchase energy from green sources.

"It's going to cause problems," said Kansas City-area Rep. Rui Xu, the top Democrat on the House committee that handled the anti-ESG legislation.

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Utah's Republican state treasurer recently told a GOP gathering that ESG "opens the door to authoritarianism" and is "Satan's plan." On Thursday, 19 GOP governors, including Ron DeSantis of Florida and Kristi Noem of South Dakota, issued a joint statement calling ESG a "direct threat to the American economy, individual economic freedom, and our way of life."

In Kansas, newly elected GOP Attorney General Kris Kobach and Republican State Treasurer Steven Johnson back anti-ESG measures, but they've argued that allowing the investment of state funds using ESG principles threatens to reduce the state's investment returns. Kobach has argued for an informed consent requirement for private money managers as a consumer protection measure.

But state Rep. Nick Hoheisel, a Wichita Republican who chairs the House committee that handled anti-ESG legislation, said its GOP members don't want to impose new mandates on private businesses.

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"We have enough mandates on businesses already," Hoheisel said after the committee approved its bill. "In fact, we need to go back and start repealing some mandates on businesses."