Proposed legislation to limit the use of sustainable investment factors by fund managers of the U.S. state of Indiana could cut $6.7 billion from the investment returns of a public pension system there over a decade, a fiscal analysis shows.

One such bill proposed in Indiana requires public pension system officials to act only in the fiduciary interests of participants and beneficiaries.

According to a Feb. 4 “fiscal impact statement” prepared by the Indiana Legislative Services Agency, which advises lawmakers in the mid-western state, over the next 10 years the bill could cut investment returns for the Indiana Public Retirement System by $6.4 billion for defined benefit funds and by $300 million for defined contribution funds, based on an estimate by the system.

“This would likely result in increased expenditures for state employers for pension contributions,” the analysis states.

Legislation to limit the use of sustainable investment factors is part of growing efforts by U.S. Republican politicians to counter the use of environmental, social and governance (ESG) considerations by pension funds.

But many asset managers have embraced ESG strategies as investors show growing concern for issues like climate change or workforce diversity, meaning the bills could limit competition to manage retirement money in Republican states or cut them off from the best deals.

Among other things the note states the proposed Indiana bill’s definitions would prevent the pension system “from using outside investment managers who pursue or market ESG investments for other clients,” according to the analysis.

The bill also may effectively prohibit investments in private equity, the analysis states.

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