Wyoming’s Governor Mark Gordon chose not to have more government oversight of certain types of financial investments in the state.
The decision revolved around ESG investing – which stands for environmental, social and governance. It’s basically value based investments, like what’s philanthropically or ethically best to invest in. David Swindell, executive director of the Wyoming Retirement System, said defining that type of investment is ambiguous.
“The trouble of precisely defining it is one of the difficulties because everybody has their own idea as to what this really means. And that becomes a difficulty when you're trying to either promote it or discourage it,” said Swindell. “So it gets a little complicated, but basically it's just kind of another element of culture wars.”
Swindell pointed to examples where investors want their investment to address something – so choosing a company because of its stance on climate change or gender and diversity.
States are already doing that. California is encouraging this type of investing for its state pension portfolios – like choosing companies that are trying to reduce their carbon footprint. Meanwhile, states like Texas have what’s called ‘anti-ESG’ laws, which ban state investments in companies that are against fossil fuels. Notably, Wyoming doesn’t have this kind of law.
“And so it's a reaction to what's happened in California and Oregon, that if they're going to ban fossil fuels, ‘We're going to ban those that are trying to ban fossil fuels,’” said Swindell.
Wyoming also sees ESG as a threat to its fossil fuel industry. This was most recently seen in a December rules proposal from Secretary of State Chuck Gray that would've made ESG investing more challenging.
“Those rules were directed to the private investment community,” Swindell said. “So if you were having an account that you are having a broker or a wealth manager manage for you, that they would be required to avoid ESG investing, or if they did, they would need to disclose that to you.”
Specifically, it would have required all investors and brokers in Wyoming to disclose any ESG principles to their client, this could be any Wyomingite that hired them to manage their investments, by “simultaneous verbal and written communication.” The client would have to provide written consent to this choice every three years.
But, as initially reported by Wyofile, Gordon vetoed that part of the rule, saying it’s out of the scope of what the state can regulate.
“While I agree that ESG investment guidance is improper and misleading, the answer to too much government interference in our lives is not more government,” Gordon said in a press release. “No government should have the right to direct people’s personal investment strategies.”
While these rules wouldn’t have affected pension funds, Swindell said he approves of Gordon’s actions. He added that in his industry, he doesn’t support or disprove ESG, he just wants the best financial return for his client.
“We oppose efforts that would restrict our access to capital markets,” Swindell said. “Because we would always make less money for our members, if we had to diversify from certain industries or stay away from certain managers, because that manager might have another investment or another mutual fund that they operate for the benefit of California or Oregon or people that thought like that. We just want to stay away from all that stuff.”
A portion of Gray’s rules will move forward that still requires brokers to disclose ESG principles, but just written – not “simultaneous” verbal and written. Gray expressed mixed feelings about it in a press release.
“Although the Governor’s line-item veto weakened the amount of protections we attempted to provide to customers and clients to protect them from the dangers of ESG investment strategies, I believe the final rules offer a necessary starting point to protect Wyomingites from social ideologues imposing their radical, clown-show agenda on our state,” Gray said.
Notably, in August, Wyoming did pass a policy that affects state investments – not the private investment world. It requires companies in business with the state to disclose ESG principles.
