Study Uncovers Billions in Kansas Taxpayer Funds in ESG Investments

Kansas’ new Public Investments and Contracts Protection Act that becomes effective July 1, 2023 requires that any investment of taxpayer funds must be made with a focus on maximizing taxpayer return-on-investment and not pursuing political agendas.

The Transparency Foundation analyzed over $40.6 billion in investments across all Kansas state funds as of FY 2022 and found billions in investments non-compliant with this new law.

The Kansas State Treasurer has direct managerial control of about a quarter of the $40.6 billion in investments across all state funds as of FY 2022, which are primarily composed of short term, liquid instruments such as Treasuries and commercial paper. Control over the remainder, which primarily in the KPERS pension system and three state university endowment funds, is at best arm’s length, but this is where most of the long-term equity and debt investments can be found.

The Environmental, Social, and Governance (ESG) movement is among the most egregious of these destructive policies and it has infested our nation’s capital markets. ESG is the notion that investments should not be made based on strictly financial outcomes and fiduciary responsibility but rather should be made to advance social and political agendas.

ESG and the closely allied dogma of “diversity, equity, and inclusion” (DEI) are nothing short of a social scoring system designed to re-direct the capital markets to conform to a decidedly totalitarian ideology. These pose an even greater danger when considering the threat of a central bank digital currency upon the ability of industries and businesses to access capital based upon non-politicized economic merit.

In terms of a state-wide agenda for the State Treasurer to combat ESG investments in public funds, then, we see four distinct actions to immediately consider:

• Treasurer-Controlled Funds: Continue to monitor the short-term investments already under Treasurer control, where the ESG orientation will primarily be towards the dealers, banks, and commercial paper counterparties;
• KPERS Remediation: Work to bring the substantial $24.5 mil of KPERS pension investments in line with the new ESG statutes. There appear to be substantial ESG issues in this portfolio given our review of the fund advisors, managers, custodian, forwards counterparties, and alternative/private equity fund families evident in publicly available disclosure;‍
• University Endowments: Use the new ESG legislation to initiate control over the nearly $4 bill invested in the three state university endowment funds, beginning with greater disclosure of managers, consultants, and individual investments; public disclosure here is at present very weak. While the legislation applies to “any subdivision of the state or instrumentality thereof”, control of the endowment assets may present political or legal challenges.
• Legislative Enhancements: Longer term, consider extending the ESG legislation to all subdivisions within the state based on any obstacles or lessons-learned in executing the steps above. The Treasurer already manages $1.6 billion of subdivision funds within the MIP, but there are substantial investments for operations and separate pensions within the largest cities and counties (e.g., $2.2 billion for Wichita)

About this Research Initiative:

This State Financial Assets Analysis Series prepared by The Transparency Foundation is specifically designed to help state treasurers and their colleagues identify the range of state monies they do or could aspire to control, and the degree of potential ESG contamination that currently exists within these funds, based upon publicly available documentation.

As such these will be useful for those states considering anti-ESG legislation, as well as those who have already enacted such, and wish to monitor their progress. This series will enable a database of cross-referenced capital markets players, consultants, counterparties, managers, and fund families to better enable state treasures to better collaborate on anti-ESG initiatives.