Maine legislators halt bill opposed to use of ESG factors

Portland, Maine

State pension professionals argued against it, saying the legislation would limit investment considerations.

Maine state lawmakers late last week rejected a bill that would have restricted ESG considerations in public pensions plans.

That legislation, “An Act to Protect the Retirement of State Employees and Teachers by Establishing Standards for Fiduciary Responsibility,” sought to prohibit “decision-making with regard to investments in the retirement system based on certain nonpecuniary factors such as environmental, social, corporate governance, ideological or political factors.”

The bill was introduced in the state House on April 11 and was referred to committee. Last Thursday, the state Senate placed it in the legislative files designation, meaning that the bill is dead in the current session.

Like other bills that have surfaced in state legislatures across the country, the Maine legislation would have severely limited or outright prohibited ESG factors from being considered when making investment decisions or voting proxies at portfolio companies.

However, it did contain a provision allowing pension plan fiduciaries to “consider nonpecuniary benefits” if such factors could be considered material “under generally accepted investment theories.” And in those cases, fiduciaries would also have to consider whether “investments that rank poorly” on ESG issues have the potential to outperform.

The House Committee on Labor and Housing considered the bill on April 20 and took public testimony from nine groups and individuals, all but one of whom asked legislators to nix it.

State pension officials argued against the bill, noting that it either duplicated existing law, went against Maine’s constitution or had the potential to negatively affect investment decisions.

“[ESG] factors can affect the long-term value of investments, and to the extent they do, the constitutional fiduciary duty requires that they be considered,” Michael Colleran, chief operating officer at the Maine Public Employees Retirement System, said in comments. “The bill also appears to restrict or prohibit consideration of risks that are general, systemic or highly uncertain. However, the Constitution and the Maine Uniform Prudent Investor Act require the board to consider all relevant risks.”

The Maine Education Association also discouraged legislators from advancing the bill, which the group said “appears to be a template bill designed to interfere with current MainePERS policies.”

The bill appears to be based on model legislation from the American Legislative Exchange Council, John Kosinski, government relations director at the Maine Education Association, said in a statement.

“We have a concern about restricting the investment protocols currently being used by MainePERS,” Kosinski said. “If it ain’t broke, don’t fix it. MainePERS has consistently demonstrated financial acumen in their investments, and we defer to their expertise on investment issues.”