Firearm, fossil fuel boycotts prohibited under Iowa investment strategy bill

Companies managing state funds could not factor social causes into their investment strategies if legislation moved forward by an Iowa Senate panel is signed into law.

The bill targets ESG investment strategies, in which investment firms take into account “environmental, social and governance factors” when deciding where to invest money. Senate Study Bill 1094 would prohibit the state from entering into contracts for public fund investments with companies that prioritize social investments or boycotts of certain companies when investing money.

A Senate subcommittee advanced the bill Tuesday.

Investment and banking companies could not limit opportunities for gun and ammunition manufacturers, fossil fuel energy companies, or mining, timber and agricultural producers. Additionally, the bill limits “nonpecuniary social investments,” or investing strategies that considers the impacts of businesses on the environment or in social and political spheres over maximizing returns.

Molly Severn, legislative liaison for the governor’s office, said that ESG practices are legally and financially questionable.

“Public officials are responsible for investing billions of dollars in retirement funds, pension funds, and other investment vehicles,” Severn said. “Those hard-earned dollars must not be sacrificed to advance progressive social causes, like green energy or gun control at all costs.”

The bill would not allow funds from the Treasurer of State’s office, Board of Regents and Iowa Public Employees’ Retirement System to enter contracts with companies using ESG practices. Iowa’s police, firefighter, state peace officers and judicial retirement systems, as well as state public entities, also would be limited. The legislation calls for the creation of a “scrutinized company” list, which parties like IPERS and other investor parties can reference for companies engaging in ESG strategies or boycotts of specific industries.

Greg Samorajski, CEO of IPERS, said the public employee’s retirement and pension system already has internal policies that require investments to be made solely considering the interests of its members.

“We’re not allowed to consider ESG criteria as a goal in and of themselves,” Samorajski said. “Our understanding or analysis of this bill is that it codifies what we’re doing now.”

Other business, banking and investment lobbyists said they were monitoring the bill, but did not register for or against. Dan Cassady, executive director of the Municipal Fire and Police Retirement System of Iowa, echoed Samorajski’s comment that their system is currently not engaged in ESG practices.

“We always have some concerns when we’re potentially limiting investment opportunities,” Cassady said.

Iowa already contains some limits on investments. In 2022, the governor signed into law amendments to a 2016 law prohibiting the state from investing in companies that boycott Israel to include more businesses like ice cream maker Ben & Jerry’s. The bill was one of many passed nationwide that prohibits state money from being used in the Boycott, Divestment and Sanctions Movement, a movement attempting to put financial pressure on Israel to change its treatment of Palestinians.

Chris Lee with the National Shooting Sports Foundation said anti-BDS laws were effective in stopping companies from boycotting Israel. Lee asked for Iowa to stand with firearm and other “essential” industries just as they stood with Israel. ESG has become one of the greatest threats to the firearm industry across the country in recent years, he said.

“The firearm industry is known to be one of the only industries necessary to the exercise of a constitutional right,” Lee said. “So these ESG policies are not only directly threatening constitutional rights of the people of Iowa, but a lot of them are also impacting our ability to provide goods necessary to law enforcement and military as well.”

Banning ESG investment practices was another major goal Gov. Kim Reynolds laid out for the 2023 legislative session. No one at the subcommittee meeting spoke in opposition to the proposal, though Common Good Iowa and the Iowa Chapter of Sierra Club were registered against the bill.

Sen. Tim Kraayenbrink, R-Fort Dodge, said the bill is a precautionary measure.

“That’s why I think a lot of people go, ‘Why are you doing this?’ because it’s really not a huge problem,” Kraayenbrink said. “But it could be.”

He said it will not stop Iowa from investing in, for example, wind energy companies. But he said that these companies should chosen for investment because they work well in a portfolio, not for any other reasons.

“I think that’s where we have to stay grounded, is that we want them to be able to be fair and look only at the returns that they’re getting, and not the social consequences of what they’re investing in,” Kraayenbrink said.

The legislation moved forward to the full State Government Committee.