South Carolina is making headlines as it takes decisive steps to protect its state pension funds from being influenced by environmental, social, and governance (ESG) objectives. The South Carolina Senate has unanimously passed Bill H.3690, which ensures that the state’s pension funds are invested based on financial criteria to maximize shareholder value. This landmark legislation, having already received near-unanimous support in the South Carolina House last year, is now on its way to Governor Henry McMaster’s desk for his expected signature.

Many financial institutions have recently shifted their investment strategies towards considering ESG factors when making investment decisions. This trend has raised concerns about the potential impact on state retirement systems. Bill H.3690 is a crucial step in addressing this issue and has been a bipartisan effort in our statehouse to take action to protect South Carolina’s retirees.

Bill H.3690 is designed to ensure that South Carolina’s Retirement System Investment Commission, the group responsible for managing state pension assets, makes investment decisions solely based on “monetary factors.” These factors focus on aspects that affect risk and return to maximize shareholder value. Notably, the bill excludes considerations that promote ESG or political goals from influencing investment decisions.

The legislation also places limitations on delegating shareholder proxy-voting rights to third parties. It requires the commission to retain proxy-voting rights for shares owned on behalf of the system whenever it makes financial sense. While the commission can engage a proxy firm for assistance, such a firm must certify that its decisions are solely based on monetary factors.

Additionally, the bill outlines that capital allocation to outside investment managers is contingent on these managers committing to using only monetary factors and not other factors such as  ESG or political influences in their decision-making. However, exceptions may apply in cases where diversification needs require deviation from this rule. In such cases, the commission must provide detailed summaries of terms, fees, and performance related to the investments in its annual online report.

There is a provision in the bill that empowers the South Carolina Attorney General to take legal action to enforce these provisions, reinforcing the commitment to upholding the law.

The South Carolina Senate’s unanimous passage of Bill H.3690 is a significant step toward protecting the state’s retirement system. It aligns investment decisions with financial factors, ensuring they are made to maximize shareholder value. While further measures may be necessary to mitigate the impact of ESG factors on taxpayers and businesses, Bill H.3690 represents a strong start in safeguarding public assets.

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