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The Wyoming Freedom Caucus Wednesday dropped a controversial bill provision that would have penalized contracted financiers who invest the state's money in "ESG" funds.
Following days of heated debate and withering criticism, House lawmakers agreed to strike a section of House Bill 80, "Stop ESG-State funds fiduciary duty act," which directed the Wyoming Attorney General to sue for financial damages any firm caught putting the state's money into an investment vehicle with environmental, social or governance goals.
A wide majority of representatives then advanced the high-priority measure through its second of three votes on the chamber floor. The Freedom Caucus had previously been advancing the bill largely on their own.
State Treasurer Curt Meier and officials with the Wyoming Retirement System had warned lawmakers that the penalty would drive the best financial firms to drop the state as a client. And they predicted massive investment losses as a result -- as much as $5 billion. The clause led to fierce debate on the House floor. Some lawmakers reported a flood of messages from retired state employees who feared eroded retirement funds and curtailed pension checks.
But chief sponsor Christopher Knapp, R-Gillette, and his fellow Freedom Caucus members stood firm on the penalty clause despite a willingness to amend the bill on other grounds. That push had drawn accusations by some lawmakers that the Freedom Caucus was prioritizing the timelines set by its "five and dime" plan over the state's financial health and that of retired public servants.
On Wednesday Knapp changed course, cosigning an amendment with Rep. Martha Lawley, R-Worland, that eliminated the penalty language.
In its place, the lawmakers required a clause in contracts with investors that states they have been made aware of, and agree to follow, the state's prohibitions against ESG funds. Lawmakers adopted that amendment with broad support, and the bill now heads for its final vote in the House, which could come as quickly as tomorrow.
"It seems that Legislators heard the concerns of investment professionals and retirees alike," David Swindell, executive director of the Wyoming Retirement System, said in a statement to WyoFile. "Provisions that would have severely impacted the ability for WRS to invest the pension fund responsibly have been removed."
The change assuaged Meier's concerns with the bill as well. "The changes made in House Bill 80 this morning were vital to Wyoming's investments," he said in his own statement to WyoFile. "Having a penalty for managers would have been a non-starter."
Swindell and Meier say the amended ESG bill now largely codifies policies the state treasurer's office and other Wyoming investment bodies already have in place against investing based on any goals other than pursuing the highest possible returns.
"As for the added language requiring us to include compliance with our Investment Policy Statement to contracts, we already do that -- so no problem," Meier said. "I appreciate the legislators listening to our concerns and responding with language we can both get behind."
Swindell echoed that, calling the retirement system "ESG-agnostic" when it comes to investment picks. "In that regard, no legislation is needed," he said.
Lawley had excoriated her colleagues on Tuesday for their seeming determination to push through a bill that was driving sharp concerns from both financiers and retired public employees. "I don't understand why we are rushing this across an imaginary goal line," she said then. "We are not authorized to play politics with [people's] retirement fund."
Knapp had already made one significant amendment to the bill, taking out a list of social goals the Freedom Caucus sought to outlaw Wyoming from supporting through its investments. Since so many modern companies express some commitment to social endeavors like curbing climate change or promoting equality and inclusion, such a list would have kept the state's money managers from investing in the vast majority of Fortune 500 companies including much of the energy industry, according to public testimony.
On Wednesday, Lawley commended Knapp for continuing to work on the bill and crafting a careful amendment regarding the controversial penalty. "We came to an agreement and did some good work there, that we don't always see in the Legislature quite frankly," Lawley said.