Kansas has new anti-ESG law amid raft of culture war vetoes

Kansas officials won't be allowed to use environmental, social and governance factors in investing public funds or deciding who receives government contracts because the state's Democratic governor is allowing a Republican measure to become law without her signature.

Gov. Laura Kelly's decision Monday came after she vetoed more than a dozen other anti-transgender, anti-abortion and culture war measures approved by the Republican-controlled Legislature. She nixed a bill Monday that would have allowed parents to remove their public school students from lessons or activities that offend them and another measure that Kelly said could have led to prison terms for some people helping immigrants living in the U.S. illegally.

The new anti-ESG law, taking effect July 1, is part of a larger push from conservatives across the U.S. against what they see as “woke” practices pushing liberal climate or diversity goals. At least nine states have enacted such laws; Montana's GOP governor signed a bill last week, and a measure cleared Indiana's GOP-controlled Legislature on Monday.

“This bill will ensure that public dollars — particularly our state pension fund — are invested in ways that produce the highest possible returns with the lowest acceptable risk, and that public contracts are awarded to the entities best-qualified to fulfill them," Kansas State Treasurer Steven Johnson, a Republican elected last year, said in a statement.

Republicans across the U.S. have pushed back as the use of ESG principles has become more prevalent and visible.

Last month, 19 GOP governors issued a statement calling ESG a “direct threat to the American economy, individual economic freedom, and our way of life.” Utah’s Republican state treasurer told a GOP gathering that ESG “opens the door to authoritarianism” and is “Satan’s plan.”

About one-eighth of U.S. assets being professionally managed, or $8.4 trillion, are being managed in line with ESG principles, according to a report in December from US SIF, which promotes sustainable investing.

ESG supporters argued that it represents a better assessment of risk for investors by addressing questions such as whether a worldwide shift toward green energy makes investments in fossil fuels less financially sound.

There also was research released earlier this month by Bain & Company, a global management consulting firm, and EcoVadis, which provides sustainability ratings for 110,000 companies worldwide, including 10,000 in the U.S. It showed evidence that having more women in management, greater employee satisfaction and sustainable supply chains all correlate with stronger revenue growth and higher profitability.

Researchers were careful to note that many factors can influence a company's financial results, but Sylvain Guyoton, EcoVadis' chief rating officer, said the study suggests a company's use of ESG is worth considering.

“Some of those ESG activities are good old management practices that have been rebranded into ESG,” Guyoton said in a recent interview from Paris.

In announcing that the Kansas measure was becoming law, Kelly didn't touch on how investment managers for the state and its pension system for teachers and government workers will be required to “consider only financial factors” when making investment decisions.

The governor acknowledged having reservations about “potential unforeseen consequences” over how the state and cities, counties and local school districts will not be able to favor bidders on contracts based on ESG principles.

The measure had little support from Democratic lawmakers. Conservatives dropped proposals for new rules for private money managers following strong backlash from influential business and banking groups.

Meanwhile, Kelly scotched Republicans' proposed “parents' bill of rights,” which would have allowed parents to demand an alternative when a public school lesson or activity “impairs the parent’s sincerely held beliefs, values or principles.” The governor said such a measure “distracts” from fully funding education.

House Speaker Dan Hawkins, a Wichita Republican, said Kelly was opposing parents’ right “to direct their own children’s education, upbringing and moral or religious training.” The bill's supporters did not appear to have the two-thirds majorities necessary to override a veto.

Republicans said the immigration bill would have combatted human smuggling.

It would have made it a felony to transport, harbor or conceal another person, applying when someone knows or should have known that a person is in the U.S. illegally and “is likely to be exploited” for another's financial gain, if the person dealing with the immigrant "benefits financially or receives anything of value.” A first-time offender could be sentenced to almost three years in prison.

Kelly argued that the bill could send “a good Samaritan” to prison for accepting gas money for driving an immigrant neighbor to work.

“That overcriminalization is unnecessary and shows that lawmakers haven’t considered the full impact of this bill,” Kelly said.

The measure cleared the Legislature with large, bipartisan supermajorities.

“Governor Kelly has sided against law and order and put radical politics above the safety and human rights of victims,” Hawkins said in a statement.

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