Bill Description: Senate Bill 1405 would instruct public entities engaging in investment activities to act as prudent investors, and not to prioritize "environmental, social, or governance" characteristics.
Analyst Note: There is a growing trend among certain corporations to prioritize 'woke' policies or 'social justice' advocacy ahead of generating profits for shareholders. Some investment advisors are choosing to prioritize investments in such corporations despite the financial risks of doing so.
Chapter 5, title 68, Idaho Code, is known as the "Uniform Prudent Investor Act," and it requires, among other things, that a trustee prudently manage a portfolio to achieve financial gains for the trust.
Senate Bill 1405 creates Section 67-2345, Idaho Code, to say that "public entities engaging in investment activities with an investment agent shall apply the Idaho uniform prudent investor act, chapter 5, title 68, Idaho Code, when selecting investments. No public entity engaged in investment activities shall consider environmental, social, or governance characteristics in a manner that could override the prudent investor rule."
The bill also says, "A public entity serving as a fiduciary to select investment options for investors may offer environmental, social, and governance preferred investment alternatives, but such investments shall not be required and sufficient alternatives must be also offered."
An additional subsection says, "Public entities engaging in investment activities with an investment agent shall require notification to the public entity if the investment agent adopts a policy or revises a policy related to disfavored investments applicable to the public entity's investment."
These may serve as small steps toward heading off what may quickly become a significant problem. The fiduciary duties of an investment advisor or manager must be better clarified in light of efforts by 'social justice' advocates to hijack corporations and indeed the market as a whole.
Noted economist Ludwig Von Mises once wrote, "It is irrelevant to the entrepreneur, as the servant of the consumers, whether the wishes and wants of the consumers are wise or unwise, moral or immoral. He produces what the consumers want. In this sense he is amoral. He manufactures whiskey and guns just as he produces food and clothing. ... It is not because we have distilleries that people drink whiskey; it is because people like to drink whiskey that we have distilleries."
There is a principle to be gleaned here that applies to investment advisors and managers. Automotive investments, for example, should be based solely on financial analyses of the investments, not on one's belief that electric-powered vehicles are morally superior to gasoline-powered ones.
Senate Bill 1405 only begins to address these issues, and more legislation will likely be required to adequately protect financial investments for those who depend on them and not allow ideologues within public entities to restructure public investments based on their political or moral beliefs.
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