South Carolina | Ropes & Gray LLP

State Regulations

Legislation/Guidance in Effect

Title

Key Dates

Nature of
Action

ESG Category

Summary

HB3690: ESG Pension Protection Act

Effective date

2/5/2024

Adopted

1/17/2024

Introduced

1/19/2023

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■ Specifies that the Retirement System Investment Commission (RSIC) may only consider pecuniary factors when making investment decisions on the retirement system managed by the commission. RSIC shall adopt a statement of investment objectives and policies for the retirement system. The statement must include the desired rate of return on assets overall, the desired rates of return and acceptable levels of risk for each asset class, asset-allocation goals, guidelines for the delegation of authority, an explicit statement that all investment decisions must be based only on the consideration of pecuniary factors, and information on the types of reports to be used to evaluate investment performance. At least annually, the commission shall review the statement and change or reaffirm it. The relevant portion of this statement may constitute parts of the annual investment plan.

■ Any RSIC engagement with a company regarding the exercise of shareholder proxy votes or the proposal of a proxy question must be based solely on pecuniary factors and for the sole purpose of maximizing shareholder value, except that the commission may engage with a company to express opposition to the proposal of or the merits of a proxy question that does not have a pecuniary impact.

■ To the extent economically practicable, RSIC must retain the authority to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of a system. The commission may retain a proxy firm or advisory service to assist the commission in exercising shareholder proxy rights, but only if the proxy advisor has a practice of and commits in writing to follow proxy guidelines that are consistent with the requirements of the legislation.

■ The legislation also changed the requirements regarding the closing documentation of an investment by specifying that the closing documentation of any investment also must include the CEO's certification that the decision to make the investment is based on pecuniary factors and is not being made to promote, further, or achieve any nonpecuniary goal, objective, or outcome.

South Carolina State Treasurer Announced Divestment of State Funds from BlackRock

Adopted
1/10/2023

Enforcement / Divestment

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■ The South Carolina State Treasurer announced it will divest the final $200 million of State Treasury funds from BlackRock based on the State Treasurer’s ESG concerns. In an email, the State Treasurer noted he has worked for five years to systematically remove BlackRock-managed funds, having “realized early on that ESG (environmental, social and governance) had the potential to seriously undermine [South Carolina’s] economic model from one that values fiduciary responsibility and sound financial judgment to one that pushes the left-wing political agenda of ‘stakeholder capitalism.’”

Past/Inactive Legislation

Title	Key Dates	Nature of Action	ESG Category	Summary
HB5169: Farmer Protection Act	Introduced, but did not pass in 2024 legislative session	Legislation	Prohibit Discrimination on Basis of Social Credit or ESG Scores	Summary reflects proposed amended version as of 4/2/2024: ■ Prohibits financial institutions from discriminating in the provision of financial services to an agriculture producer based, in whole or in part, based, in whole or in part, upon an ESG factor, which is defined as any factor or consideration that is collateral to or not reasonably likely to affect or impact the financial risk and include the promotion, furtherance, or achievement of environmental, social, or political goals, objectives, or outcomes which may include the agriculture producer's greenhouse gas emissions, use of fossil-fuel derived fertilizer, or use of fossil-fuel powered machinery. ■ If a financial institution has made any ESG commitment related to agriculture, there is an inference that the institution's denial or restriction of a financial service to an agriculture producer violates the prohibition above. ■ A financial institution may overcome the inference above by demonstrating that its denial or restriction of a financial service was based solely on documented risk analysis, and not on any ESG factor. ■ This act may be enforced by the South Carolina Attorney General. Any violation of constitutes an unfair trade practice, and the Attorney General may investigate and seek remedies as provided in that law. ■ The legislation would take effect upon approval by the Governor.
SB1014: Relating To Prohibited Conduct In Providing Investment Advice Regarding Securities, So As To Set Disclosure Standards For Investment Advisers Who Render Services Based On Social Or Nonfinancial Factors	Introduced, but did not pass in 2024 legislative session	Legislation	Restrict Use of ESG Factors; Focus on Pecuniary Characteristics	■ Prohibits persons who are paid to advise, either directly or indirectly or through publications or writings, on the value of securities or the advisability of investing in, purchasing, or selling securities, or who, as part of a regular business, issues or promulgates analyses or reports relating to securities, from misrepresenting, making a false statement, or failing to disclose any essential or material fact relating to such investment advice. ■ Failing to disclose a material fact includes whether the adviser incorporate a social objective or a nonfinancial objective into his or her recommendations. ■ Incorporating a social objective is defined in part as for the purpose of obtaining an effect other than a maximized financial return to the client.
HB4699: Provides that the State or any Political Subdivisions may not Offer Incentives or Subsidies to Certain Companies that Engage in the Promotion of Environmental, Social, or Governance Objectives.	Introduced, but did not pass in 2024 legislative session	Legislation	Prohibit Discrimination on Basis of Social Credit or ESG Scores	■Beginning July 1, 2024, the State may not offer any incentives or subsidies to a company that participates in a scoring or rating system that evaluates that company on the basis of environmental, social, or governance goals, objectives, or outcomes, including sustainable development, which a prudent person in a like capacity would reasonably believe has no material effect or impact on the financial risk of, or return on, an investment. ■When offering an incentive or subsidy, the applicable state agency or political subdivision shall require the company to certify in writing that it does not participate in such a scoring or rating system, it does not advertise any such rating which may exist, and it will not make fiduciary decisions in furtherance of such a rating. The applicable state agency or political subdivision also shall require the company to affirm in writing that it will operate in the best interests of the people of South Carolina.
SB634: Restricting Public Funds	Introduced, but did not pass in 2024 legislative session	Legislation	Restrict Use of ESG Factors; Focus on Pecuniary Characteristics	■ Expresses the sense of the Senate that public funds should not be dedicated to economic development projects that benefit a corporation that is actively engaged in promoting environmental, social, or political goals, objectives, or outcomes.
SB583: ESG Investing	Introduced, but did not pass in 2024 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ Requires consideration of pecuniary factors and prohibits promotion of non-pecuniary benefits or outcomes when making an investment. Requires insurance companies, banking institutions, trust institutions, and credit unions to disclose how pursuit of non-pecuniary factors affects its services, if applicable. ■ Prohibits the allocation of capital to an external investment manager to implement a public equity investment strategy unless the investment manager has a practice of and commits in writing to vote proxies and engage with companies only on pecuniary factors and for the sole purpose of maximizing shareholder value.
HB3393: Prohibiting Discrimination against Certain Manufacturers and Retailers of Firearms	Introduced, but did not pass in 2024 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ Prohibits state governmental entities from entering into a contract with a company for goods or services worth at least $100,000 and paid at least partly from public funds unless the company verifies in writing that it does not discriminate against firearm entities or firearm trade associations and will not do so during the contract term. Only applies to companies with at least 10 full-time employees.
H3056: Reviewing Presidential Executive Orders	Introduced, but did not pass in 2024 legislative session	Legislation	Restrict Use of ESG Factors; Focus on Pecuniary Characteristics	■ Provides that the General Assembly, either of its respective bodies, a standing committee, the Speaker of the House of Representatives, the President of the Senate, or not less than five members of the General Assembly may review any presidential executive order not affirmed by Congress and may recommend that the Attorney General review a presidential executive order to determine its constitutionality under certain circumstances, including the regulation of the financial sector as it relates to environmental, social, or governance standards
HB3565: Providing that State Retirement Funds Must be Invested Solely to Achieve a Return for Pension Plan Beneficiaries and Not to Achieve Certain Political and Social Objectives	Introduced, but did not pass in 2024 legislative session	Legislation	Restrict Use of ESG Factors; Focus on Pecuniary Characteristics	■ Requires an investment fiduciary to discharge his or her duties in the interests of the participants in a public employee retirement system and their beneficiaries for the exclusive purpose of providing financial benefits and paying reasonable expenses for administering the public employee retirement system. Additionally, requires an investment fiduciary to take into account only financial factors when discharging fiduciary duties. ■ Requires all shares held by or on behalf of a public employee retirement system, the participants, and their beneficiaries be voted solely in the financial interest of participants in the system and their beneficiaries. SUBSEQUENT DEVELOPMENTS Tracks the Heritage Foundation's "State Pension Fiduciary Duty Act"
HB3564: Eliminate Economic Boycotts Act	Introduced, but did not pass in 2024 legislative session	Legislation	Restrict Use of ESG Factors; Focus on Pecuniary Characteristics	■ Prohibits state governmental entities from entering into a contract with a company for the purchase of goods or services worth at least $50,000 and paid at least partly from public funds unless the company verifies in writing that it does not engage in “economic boycotts” or use any ESG standards and will not do so during the contract term. Only applies to companies with at least 10 full-time employees. “Economic boycott” means the boycott of any company (without any ordinary business purpose) because the company engages in fossil fuel-based energy or firearm activities, does not meet or expect to meet ESG criteria, or does not facilitate access to abortion, sex or gender change, or transgender surgery.
HB3564: Eliminate Economic Boycotts Act	Introduced, but did not pass in 2024 legislative session	Legislation	Target Entities That Boycott Certain Industries
HB3525: An Act To Prohibit Investment In Companies That Boycott Energy Companies	Introduced, but did not pass in 2024 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ The executive director of the State Fiscal Accountability Authority shall prepare and maintain, and provide to each state governmental entity, a list of all financial companies that boycott energy companies. A financial company that fails to provide to the executive director a written verification pursuant to subsection(A)(2) before the sixty first day after receiving the request from the executive director is presumed to be boycotting energy companies. ■ The executive director shall update the list annually or more often as he considers necessary, but no more often than quarterly, based on information from, among other sources, those listed in subsection (A). ■ No later than the thirtieth day after the date the list of financial companies that boycott energy companies is first provided or updated, the executive director shall file the list with the President of the Senate, the Speaker of the House of Representatives, and the Attorney General and post the list on a publicly available Internet website. ■ Section 11-59-80: No later than the 30th day after the date a state governmental entity receives the list, the state governmental entity shall notify the executive director of the listed financial companies in which the state governmental entity owns direct holdings or indirect holdings. A state governmental entity required to sell, redeem, divest, or withdraw all publicly traded securities of a listed financial company shall comply with the following schedule: (1) at least 50% of those assets must be removed from the state governmental entity 's assets under management not later than 180 days after the date the financial company receives notice unless the state governmental entity determines, based on a good faith exercise of its fiduciary discretion and subject to item (2), that a later date is more prudent; and (2) 100% of those assets must be removed from the state governmental entity's assets under management not later than the 360 days after the date the financial company receives notice.
S111: Provides That All Banks and Financial Institutions May Not Discriminate Based on Certain Subjective or Arbitrary Standards	Introduced, but did not pass in 2024 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ Prohibits all banks and financial institutions doing business in South Carolina (directly or indirectly) from discriminating against, advocating for, or causing adverse treatment of citizens or businesses when making lending decisions, including use of “social credit, environmental, social, and governance, or similar values-based or impact criteria” when making determinations. ■ Does not apply to investments, products, and services that include “subjective standards” if fully disclosed and explained to potential customers or investors before entering into a contract. ■ Imposes a fine of $50,000 for a first offense, $250,000 for each subsequent offense, and a doubled fine for five or more offenses. ■ Same as HB4978 below but limited to banks and financial institutions.
	Introduced, but did not pass in 2024 legislative session	Legislation	Prohibit Discrimination on Basis of Social Credit or ESG Scores
HB4996: To Prohibit Investment in and Contracting with Companies that Boycott Energy Companies	Introduced, but did not pass in the 2022 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ Applies to any “state governmental entity,” including the South Carolina Retirement System. ■ Requires the executive director of the State Fiscal Accountability Authority to maintain a list of financial companies that boycott energy companies. ■ Prohibits investment in listed companies. Requires divestment of 50% of assets within 180 days and all assets within 360 days from listed companies that do not cease their boycott within 90 days of receiving notice of the state entity's intention to divest. ■ Does not apply to indirect holdings in actively or passively managed investment funds or private equity funds but requires the state entity to request that the fund managers remove listed companies from the funds or create similar funds without holdings in these companies.
HB4978: Provides That All Banks and Financial Institutions and All Private Businesses, Respectively, May Not Discriminate Based on Certain Subjective or Arbitrary Standards	Introduced, but did not pass in the 2022 legislative session	Legislation	Target Entities That Boycott Certain Industries	■ Prohibits all private businesses doing business in South Carolina (directly or indirectly), including banks and financial institutions, from discriminating against, advocating for, or causing adverse treatment of citizens or businesses when making lending decisions, including use of “social credit, environmental, social, and governance, or similar values-based or impact criteria” when making determinations. ■ Does not apply to investments, products, and services that include “subjective standards” if fully disclosed and explained to potential customers or investors before entering into a contract. ■ Imposes a fine of $50,000 for a first offense, $250,000 for each subsequent offense, and a doubled fine for five or more offenses.
		Legislation	Prohibit Discrimination on Basis of Social Credit or ESG Scores