Committee advances anti-ESG divestment bill after amendments, retirement-system witnesses warn of costs

The State Agencies & Governmental Affairs Senate committee passed HB 1307 as amended after accepting sponsor Representative Jeff Wardlaw's changes aimed at narrowing the bill's scope and adding exemptions for fiduciary decisions.

Wardlaw said the amendment clarifies that 'discriminate' does not include actions by investment advisers operating under investment-related guidelines and inserts a divestment exemption that allows retirement systems to divest only when doing so meets fiduciary obligations and is in the retirement systems' best interest. "That way they're not divesting and losing any money," Wardlaw said while explaining the amendment.

Clint Roden, executive director of the Arkansas Teacher Retirement System (ATRS), testified that ATRS staff asked investment consultants to estimate the bill's financial effect and received a conservative estimate: a reduction in the assumed return of 10 basis points (0.1%) on roughly $7 billion in direct investments, which Roden said equates to about $7,000,000 per year. Roden said the cost stems from possible higher fees and reduced competition among financial service providers if some are put on a state 'list.' He asked the committee to consider exempting retirement systems entirely or otherwise protect their fiduciary duties.

Committee members asked whether the amendment addressed earlier estimates published in the press, including a cited APER estimate (reported range in committee discussion of $30 million to $440 million); sponsors and witnesses said narrowing the bill and exempting investment advisers reduced the likely impact but uncertainty remains because no formal 'list' of affected financial-service providers exists yet.

After debate about fiscal impacts and policy consistency, the committee passed HB 1307 as amended by voice vote. The sponsor said he would continue to meet with stakeholders and that the bill still requires additional chamber procedures.