SB 1291: Bill prohibiting state contracts with ESG ties — 2024

Senator Doug Ricks (R-Rexburg) and Idaho State Treasurer Julie Ellsworth introduced Senate Bill 1291 as part of a years-long attack on Environmental, Social, and Governance (ESG) investing.

First, what is ESG? It’s a set of risk management considerations focused on climate-related risks, social and community impacts, diversity of leadership, exposure to regulatory risk, and hundreds of other factors related to “material risk.” Several large firms (MCSI, Sustainalytics and S&P) measure and report on ESG metrics, that investors can use to manage investments.

The bill would prohibit any state or public contracts with companies or financial institutions that decline to do business with specific sectors (fossil fuels, mining, agriculture, timber, firearms, hydro and nuclear power), unless they have a legitimate business purpose to make that decision. The bill differs from a similar bill that failed last year (HB 189) by allowing contracts if required by statute, the Idaho Constitution, or other obligations.

As a result, based on requirements for best-value contacting by the Idaho Procurement Act, and other requirements to manage public investments and municipal bonds as a “prudent investor” would, it doesn’t appear that the impacts of this year’s bill would be as severe.

In 2021 Texas passed a similar bill to limit contracts and taxpayers faced costs of $532 million in increased bond payments, during the first 8 months the law was in effect. That’s because reduced competition from bond underwriters resulted when large sources of capital (i.e. recognizable lenders like Wells Fargo, JP Morgan, Blackrock, Fidelity Capital Markets, and others) left the state.

A study last year evaluating other states considering similar legislation found the the impacts of similar Anti-ESG to be similarly costly. And in Oklahoma, a pensioner sued over the impacts of a similar bill on his retirement.

While the amendments made to the bill this year appear to limit some of the most drastic effects, there’s still concern that the bill interferes with private investment decisions and undermines efforts to improve sustainability and good governance principles.