Illinois

Title

Key Dates

Nature of
Action

ESG Category

Summary

HB2782: Sustainability Disclosures

Effective date 1/1/2024

Adopted 5/25/2023

Introduced
2/16/2023

Legislation

Promote ESG Factors in Investment and/or Proxy Voting Decisions

■ Requires every investment manager to provide a description of the process through which the manager prudently integrates sustainability factors into its investment decision-making, investment analysis, portfolio construction, due diligence, and investment ownership starting January 1, 2024. Requires such annual disclosure to be submitted to each public agency, pension fund, retirement system, and governmental unit for which the investment manager is seeking selection as a fiduciary.

SB2152: Pen CD-Investment Proxy Voting

Adopted and in effect
5/11/2023

Introduced
2/10/2023

Legislation

Promote ESG Factors in Investment and/or Proxy Voting Decisions

■ Authorizes the state treasurer to manage the State Employees' Retirement System's proxy voting activity and execute required ballots on behalf of the System. Requires the treasurer to provide the board with proxy voting reports on a quarterly basis and as requested by the Board.

■ Requires the board to report on how the board is considering sustainability factors as defined in the Illinois Sustainable Investing Act by September 1, 2023, and annually thereafter.

State Treasurer testified at the US House Oversight Committee's ESG Hearing

Adopted and in effect
5/10/2023

Treasurer Position

Affirmatively Not Restricting ESG

■ On May 10, 2023, Illinois State Treasurer Michael Frerichs testified at the U.S. House Oversight Committee's ESG hearing as a "minority witness," claiming that his approach is "to integrate material ESG factors into investment decisions along with many other considerations" and that he is "not ignoring traditional financial factors like profitability and creditworthiness" but "integrating more data into the decisions to give a better idea of risk and growth prospects."

Effective Date 5/1/2023

Adopted
5/1/2023

Introduced
5/1/2023

■ The Treasurer has a deep interest in the working conditions of those employed on behalf of the Treasurer and its investment advisors. The Treasurer, through this Policy, supports and encourages fair wages and fair benefits for workers employed by its managers, contractors and subcontractors, subject at all times to the fiduciary duties of loyalty and prudence, which require competitive returns on the Treasurer’s real
estate and infrastructure investments.

■ The Treasurer endorses small business development, market competition, and control of operating costs. The Treasurer supports many of the ideals espoused by labor
unions and welcomes participation by labor unions and their signatory contractors in the development and management of the Treasurer’s real estate and infrastructure investments. The Treasurer believes that an adequately compensated and trained worker delivers a higher quality product and service.

■ This Policy is intended to ensure that contractors will be selected based upon demonstrated ability to provide high quality services, their record of compliance with applicable statutes, and payment of fair wages and benefits to employees, as well as by their experience, reputation, responsiveness, fees, and dependability, thereby enhancing the value of real estate properties and infrastructure investments.

■ For Controlled Investments (the Treasurer owns more than a 50% equity position either directly or indirectly in a real estate or investment fund or project), if the Treasurer or External Investment Consultant becomes aware of noncompliance, the Treasurer in consultation with its external Investment Consultant will place a noncompliant investment advisor or property manager on a probation watch list. If the investment advisor or property manager does not modify this pattern of conduct even after discussions, the Treasurer and External Investment Consultant will consider this pattern of conduct along with other information when it reviews the investment advisor or property manager contract for possible renewal. The key indicator is a pattern of conduct that is inconsistent with the provisions of this Policy. 

PA101-473: Illinois Sustainable Investing Act

Effective date
1/1/2020

Adopted
8/23/2019

Introduced
2/13/2019

Legislation

Promote ESG Factors in Investment and/or Proxy Voting Decisions

■ Directs state and local government entities that manage public funds to consider materially relevant sustainability factors, including corporate governance and leadership, environmental, social capital, human capital, and business model and innovation factors.

SUBSEQUENT DEVELOPMENTS

Effective February 24, 2021, the 2021 Proxy Voting Policy Statement allows the Treasurer's Office to vote against directors at companies where the board has failed in its oversight responsibilities (i.e., significant corporate misbehavior, repeated financial restatements or inadequate responses to systemic risks, including climate change that may have a material impact on performance).

Title

Key Dates

Nature of
Action

ESG Category

Summary

■ Prohibits Pension systems from making new investments in fossil fuel companies and requires pension systems to divest existing holdings by January 1, 2030, with some exceptions for de minimis exposure.

■ Starting January 1, 2026, pension systems must issue annual reports on their environmental, social, and governance (ESG) investment policies and environmental performance metrics.

■ Exceptions: For indirectly held investments that have liquidity restrictions, divestment must be completed as soon as fiscally responsible but no later than January 1, 2035. The bill allows for de minimis exposure of funds to fossil fuel investments. This means that small, insignificant amounts of investments in fossil fuel companies are permitted even after the divestment deadline.

 ■ No later than 6 months after the effective date, the Illinois State Board of Investment shall identify all companies that are State-owned enterprises of, are domiciled within, whose primary affairs are conducted within, or whose majority ownership is held within a foreign adversary, and include those companies in a list of restricted companies to be distributed to each State-managed fund or local-managed fund. These efforts include, but are not limited to, the following:
(1) reviewing and relying on publicly available  information regarding companies that are State-owned enterprises of, are domiciled within, whose primary affairs are conducted within, or whose majority ownership share is held within a foreign adversary, including information provided by non-profit organizations, research firms, and government entities;
(2) contacting asset managers and fund managers contracted by a State-managed fund that invest in companies and in funds that are State-owned enterprises of, are domiciled within, whose primary affairs are conducted within, or whose majority or plurality ownership share is held within a foreign adversary;
(3) contacting other institutional investors that have divested from or engaged with companies that are State-owned enterprises of, are domiciled within, whose primary affairs are conducted within, or whose majority ownership share is held within a foreign adversary; and
(4) retaining an independent research firm to identify companies that are directly or indirectly investment holdings of a State-managed fund or local-managed fund that are State-owned enterprises of, are domiciled within, whose primary affairs are conducted within, or whose majority+ or plurality ownership share is held within a foreign adversary.

■ "Foreign adversary" means the People's Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolas Maduro, or the Syrian Arab Republic, or any other entity deemed to be a foreign adversary by the Governor in consultation with the Director of the Illinois Emergency Management Agency and Office of Homeland Security.

■ Nothing in this Act shall be construed to inhibit, conflict, impede, or otherwise interfere with any applicable State or federal law or required financial safeguards, fiduciary requirements, and other sound investment criteria that any State-managed fund is subject to, unless abiding by those safeguards, requirements, or criteria would result in a State-managed fund or local-managed fund investing in a foreign adversary in violation of this Act.

■ Senate Resolution that reaffirms a commitment to oversight and accountability in the management of the State's investments and urges the Illinois Office of the Treasurer to prioritize the well-being and prosperity of all residents above political, partisan, or ESG considerations in all investment decisions.

■ Demands full transparency from the Illinois Office of the Treasurer regarding the rationale behind investment choices to ensure that they are based solely on sound financial principles and the best interests of the people of Illinois.

■ Pledges to diligently investigate any instances where investment decisions appear to have been influenced by political motives and to take appropriate action to safeguard the integrity of the State's financial management practices.

■ Amends the University of Illinois Act by providing that the Board of Trustees shall direct the University of Illinois Foundation, in accordance with sound investment criteria and consistent with fiduciary obligations, to not invest the assets of any endowment fund in the stocks, securities, or other obligations of any fossil fuel company or any subsidiary, affiliate, or parent of any fossil fuel company.

■ Provides that this does not preclude the de minimis exposure of any funds held by the endowment fund to the stocks, securities, or other obligations of any fossil fuel company or any subsidiary, affiliate, or parent of any fossil fuel company.

■ Requires the Board of Trustees to direct the University of Illinois Foundation to not invest in any prime commercial paper or corporate bonds issued by a fossil fuel company.

■ Provides that, beginning one year after the effective date, the Board of Trustees, subject to an affirmative determination of prudence and in accordance with sound investment criteria and consistent with its fiduciary obligations, shall direct the University of Illinois Foundation to ensure that any endowment fund does not have any "indirect investments" in individual fossil fuel companies.  This means a holding in an investment vehicle that directly or indirectly owns a more than 1% interest in one or more individual fossil fuel companies.

■ With regard to the pension funds and retirement systems established under the General Assembly, Chicago Police, Chicago Firefighter, Illinois Municipal Retirement Fund (IMRF), Chicago Municipal, Chicago Laborers', State Employees, State Universities, Downstate Teachers, or Judges Article of the Code, the legislation would prohibit investment of pension system assets in fossil fuel companies. Requires pension systems to adopt an update to its written investment policies if necessary.

■ Requires each pension system to review the extent to which the assets of the pension system are invested in the stocks, securities, or other obligations of any fossil fuel company or any subsidiary, affiliate, or parent of any fossil fuel company. The board of trustees of a pension system shall, in accordance with sound investment criteria and consistent with fiduciary obligations, divest any such holdings, and such divestment must be completed by January 1, 2029. Nothing precludes de minimis exposure of any funds held by the board to the stocks, securities, or other obligations of any fossil fuel company or any subsidiary, affiliate, or parent of any fossil fuel company.

■ Further provides that, beginning one year after the effective date of the amendatory Act, the board of trustees of a pension system--subject to an affirmative determination of prudence, and in accordance with sound investment criteria and consistent with its fiduciary obligations--shall ensure that the pension system does not invest in any indirect investment vehicle unless the board of trustees is satisfied that the investment vehicle is unlikely to have more than 2% of its assets invested in coal, oil, or gas producers. 

■ Requires pension systems to post on its publicly accessible website information detailing all its holdings in the public market and private equity investments. Beginning January 1, 2025 and annually thereafter, pension systems will have to issue a report reviewing its environmental, social, and governance investment policy, which must disclose commonly available environmental performance metrics on the environmental effects of the pension system's investments.