HB 2460: Illinois Requires Consideration of ESG Factors in Public Investments

Enacted in August 2019 and effective on January 1, 2020, HB 2460, the Illinois Sustainable Investing Act, directs state and local government entities managing public funds to integrate sustainability factors into their processes and policies. Specifically, the Act (i) requires every “public agency” and “governmental unit" to develop, publish, and implement sustainable investment policies applicable to the management of all “public funds” under its control; and (ii) requires every public agency to prudently integrate “sustainability factors” into its investment decision-making, investment analysis, portfolio construction, due diligence, and investment ownership in order to maximize financial returns, minimize projected risks, and more effectively execute its fiduciary duty. The Act also amended the Deposit of State Moneys Act, the Public Funds Investment Act, and the Pension Code to consider sustainability factors in relevant investment policies.

Sustainability factors under the Act are defined as "factors that may have a material and relevant financial impact on the safety or performance of an investment and which are complementary to financial factors and financial accounting." It further specifies that sustainability factors may include corporate governance or leadership factors (such as board independence and competence, executive compensation, leadership diversity, and ethical conduct), environmental factors that may impact investment performance (such as greenhouse gas emissions, energy and waste management, or other ecological impacts), or social capital factors that impact relationships with stakeholders such as customers or local communities (such as human rights, customer welfare and privacy, or community investment or relations).