Kentucky and West Virginia are taking steps to ensure their pension systems are protected against retirement fund managers who place a high priority on environmental, social and governance (ESG), factors when making retirement decisions.

The onus of enforcing the ban has shifted to the states since Biden’s veto. 16 Republican governors had pledged earlier this month to pool their financial resources to combat the administration. Now, legislation is being passed that would restrict state pension funds. National Review spoke with two treasurers: Riley Moore from West Virginia and Allison Ball from Kentucky.

Kentucky Governor Andy Beshear last Friday signed legislation that focuses a fiduciary solely on maximising returns. It also establishes a transparent proxy voting system. Similar legislation is expected to be signed by Jim Justice, West Virginia governor. The bill would require state’s investment boards, which oversee more than $34 million in public pensions and state investment funds, to vote only on the financial interests and not ESG factors.

Both Moore and Ball consider the legislation personal. Kentucky and West Virginia are the two largest energy producers in the country, with large coal and gas industries. There are also people whose social views don’t align with those who prioritize ESG.

“We are the country’s 5th largest energy producer. This ESG movement is clearly aimed directly at our livelihood, our economy and our job. But it’s more than that. Moore explained that it’s also about the social issues they’re pushing, which are also diametrically opposite to our way of living here in West Virginia.” Moore stated that while we may not be the wealthiest state, I would say that in terms culture, family, and civic ties, we are the richest. But they want to destroy it too.

Ball stated that ESG is not an easy task for small states and there are big pressures and agendas. However, she said, “We have many lawmakers who are from regions in which the fossil fuel industry remains present and part the employment structure.”

Both were disappointed by Biden’s decision not to veto federal anti-ESG legislation and cited it for the impetus of their state’s efforts. Ball was even present in D.C. during the passage of anti-ESG congressional legislation.

“It’s really sad that the first thing he does is to threaten and jeopardize and weaken people’s retirement benefits at a time of inflation and economic insecurity. Ball explained that this is the time to support people’s retirement systems and not put them at risk.

Both states have made progress in divesting from fossil fuel-boiling companies, which has paved the way for anti-ESG legislation. The natural next step was to ensure that state pension funds do not make political decisions contrary to residents’ values.

Moore was the first treasurer to divest from Blackrock Asset Management Company. His office also drafted House Bill 2862. National Review asked Moore why the legislation was focused on the proxy voting system for the state pension fund.

Moore stated that state pension funds can have thousands of votes in any given year. Asset managers such as Blackrock are often given the responsibility of delegating state pension boards’ proxy voting rights. These advisory services will make recommendations on how to vote for those shares.

Moore explained that ISS and Glass Lewis both stated clearly that they will recommend that those votes be cast within an ESG framework. Moore explained that asset managers vote the majority of the time and that Blackrock votes 80 percent of all the time on the recommendation from these advisory services.

Moore stated that removing their proxy voting power on boards is a way to take away their power. “I believe [the recommendations] are completely contrary to maximization of pension beneficiaries which is why we have a pension program to begin with.” It’s to make money.

Moore explained that the legislation, which will require votes to be cast in the best financial interests of retirees was able to pass despite amendments from other Republicans.

The legislation in Kentucky also makes it transparent regarding the proxy voting system. It places a fiduciary solely responsible for maximising returns.

Ball stated that she had spoken with the Kentucky attorney general and realized that ESG was not allowed in Kentucky.

Ball explained that there was “a lot of pushback coming from pension systems saying they weren’t in agreement with this interpretation of the law”.

“We felt it was important to make this a law. This is what the law says. It is the strongest and most explicit fiduciary obligation I believe in the country when it comes down to fiduciaries investing only for financial returns and not for pecuniary purposes. She said that it actually extends the fiduciary obligations. It’s not just for people who sit on boards. But it also expands them out so asset managers and investment managers are now subject to an investment obligation.”

Ball and other Kentucky legislators felt it was necessary to prioritise an ESG bill, as Kentucky has the largest unfunded retirement system in the country. This means that assets are less than accrued liabilities.

Ball stated that one of the best ways to ensure it continues on a good track is to ensure it receives good returns.

According to the Kentucky treasurer, the law gained Democratic support from the legislature because of its unfunded pension system. Ball explained that Governor Beshear signed this law knowing there would be enough legislators to repeal any veto.

He said, “It’s an electoral year for him. Ball explained that this may have affected his decision to sign the document and not face a huge battle.

The treasurer encouraged other states to follow Kentucky’s lead.

Moore, who is running to be a Congressman, stated that he plans to continue his anti ESG work at the federal level. He is particularly concerned about ratings agencies such as S&P Global that are now giving ESG scores to municipalities and states.

“West Virginia could be downgraded, but not due to our finances.” They have never been more prosperous…No, it is over our industries which, at the end of day, are economic extortion,” Moore stated.

“If we fail to comply with these ESG standards, we will be downgraded in bond rating