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Economic Impacts

Legislative efforts to disrupt financial institutions and companies that make responsible investment and business decisions have been scuttled amid revelations about the millions of dollars in additional taxpayer costs these policies would result in, as well as the growing wariness over interfering with businesses’ freedom to invest responsibly. These restrictive investment policies expose retirement beneficiaries to unnecessary risk, cost taxpayers hundreds of millions of dollars through higher interest rates on state and municipal debt offerings, and place unreasonable burdens on financial institutions. The economic impacts include: 

Forced divestment and decreased returns for pensioners

Certain bills would force states to divest their assets either from institutions deemed to have strong ESG standards in their investment strategies or institutions deemed to be ‘fossil fuel boycotters’. Without exploring the reality “boycotters”, this type of legislation has been found to result in decreased investment returns for public pensions funds. To compensate for the shortcoming, it would require a significant increase in employer contributions and state fund appropriations over time.

  • The Kansas State Division of the Budget projected reduced returns of $3.6 billion over 10 years for the Kansas Public Retirement System (KPERS) if currently proposed investment restrictions were adopted. 

  • The Arkansas Public Employees Retirement System (APERS) estimated that they could lose $30 million to $40 million a year due to an anti-ESG bill that would require the state treasurer and public entities to divest assets from certain institutions that use ESG-related metrics. Likewise, officials from the Arkansas Teacher Retirement System estimated that the system could lose $7 million a year as a result of the legislation, which they described as a conservative estimate. 

  • The Indiana Public Retirement System (INPRS) found that “[the anti-ESG legislation] could result in reduced aggregated investment returns for defined benefit and defined contribution funds managed by INPRS by $6.7 B over the next 10 years. Such a decrease would reduce the estimated annual return on investment for defined benefit pensions managed by INPRS from 6.25% to 5.05%.” 

  • The Oklahoma Public Employees Retirement System could face $9.7 million in taxes, fees and commission costs if it is forced to divest from BlackRock, Wells Fargo and Co., JPMorgan Chase and Co., State Street Corp. and Bank of America, according to the OPERS Chief Investment Officer Brad Tillberge. 

Higher interest rates on state and municipal debt offerings

Various states have proposed or enacted laws that blacklist Wall Street’s largest municipal bond underwriters, barring banks and other institutions with certain ESG policies from acting as underwriters for bonds issued by state governmental entities. This will lead to higher municipal bond interest rates that will cost taxpayers. 

  • Analysis by the economic consultant firm ESI and released by Ceres and other organizations found that taxpayers in six states — Kentucky, Florida, Louisiana, Oklahoma, West Virginia, and Missouri — could have been on the hook for up to $700 million in excess interest payments if such restrictions on sustainable investing had been passed and implemented.  

  • A previous study by the Wharton School of Business found that significant financial impacts—potentially upwards of $532 million in additional interest payments—of recent legislation to Texas taxpayers. 

Increased borrowing costs due to financial industry restrictions

Likewise, proposed ‘fair access’ legislation which has been introduced in several states across the country would raise costs for borrowers including many public entities. These bills propose to ban financial institutions from doing business in a state if they are found to discriminate due to their political affiliation or ‘social credit score’. These terms are either vague or largely undefined, providing significant discretion to the State Treasurer or Attorney General as with the ‘fossil fuel boycott’ legislation enacted in Texas. 

  • Analysis by Bloomberg further demonstrates the damage to state bond prices regardless of credit scores because of anti-ESG legislation. 

General asset management costs

Some policies considered in many states prohibit the management of state funds by financial institutions that are deemed ineligible because of their ESG policies. Consequently, some states will either need to turn to alternative institutions that charge higher fees or hire more full-time employees and rely on internal investment management. 

  • In late 2022, Missouri State Treasurer Scott Fitzpatrick announced that the Missouri State Employees’ Retirement System (MOSERS) had sold all public equities, or about $500 million in pension funds, managed by BlackRock. The funds are now managed primarily by NISA Investment Advisors LLC. According to the MOSERS annual report, NISA’s expense ratio is more than three times that of BlackRock, at 0.589% versus BlackRock’s 0.184%. This will result in a total cost increase of over $1.7 million per year for MOSERS. If all funds were managed by BlackRock instead of NISA, costs would be reduced annually by about $6.4 million. 

Compliance and proxy voting reporting costs

Proposed legislation in several states establishes new requirements on proxy voting for fiduciaries as well as their proxy advisors and other service providers. The model legislation calls for significant increases in reporting and tracking requirements on proxy voting for public pensions causing administrative costs to substantially increase. States will also see increased expenditures for hiring staff to monitor numerous financial institutions in order to meet the legislation’s requirement of maintaining a list of ineligible institutions. 

  • Legislation introduced in Indiana requires a governmental entity to, at least annually, “tabulate and report all proxy votes made in relation to the administration of a fund of the public pension system.” This would include more than 200,000 votes annually. According to a fiscal impact statement by Indiana Legislative Services, the Indiana Public Retirement System (INPRS) estimates that “the changes in the bill regarding proxy voting would increase administrative costs by $550,000 per year (p. 3)” 


On the positive side, some states including Illinois and Oregon have passed policies to explicitly protect the right to consider sustainability and other material financial factors. Two bills were also introduced in the California Senate that would give investors, consumers, and other stakeholders far more insight into companies’ efforts to address the financial risks of the climate crisis.