Minnesota lawmakers are quickly advancing a bill that would divest state pension funds and other assets tied to companies based in Russia and Belarus in response to the Russian invasion of Ukraine.
The measure is slated for a vote by the House on Thursday and the Senate next week, just a few weeks after it was first introduced. As the bill has made its way through the Legislature at lightning speed, it’s still unclear exactly what assets the Minnesota State Board of Investment (SBI) might have to sell off if and when the proposal becomes law. Any relevant holdings will represent a tiny fraction of the billions of dollars in assets managed by the SBI.
But two things have become more clear about the bill: It would not target U.S. or Minnesota companies that simply do business with or have ties to Russia; and the SBI’s divestment will likely be far less than the $53 million initially estimated.
Value of investments dropping
Lawmakers searching for ways to punish Russia economically landed on the divestment bill as one sanction strategy in early March. The legislation has been amended since it was first proposed, and now includes Belarus, among other changes.
In its current form, it says the SBI must sell, redeem or withdraw in a “fiscally prudent manner” all direct holdings of securities issued by a company with a principal place of business in Russia or Belarus, securities issued by the countries of Russia or Belarus or a “governmental unit” of the countries, as well as currency issued by Russia or Belarus. There are exceptions for investments in companies that supply goods or services meant to relieve human suffering or promote health education, religion or other humanitarian causes.
The divestment would happen within 15 months after the bill becomes law, and the measure would ban SBI from buying new securities tied to Russia and Belarus.
The divestment bill does not, however, apply to indirect holdings in what the legislation says are “actively managed” investment funds such as a mutual fund. But the board has to contact managers of those funds and ask them to consider removing the assets from the fund or creating a similar one that doesn’t have the targeted Russian or Belarussian assets for the state to invest in.
As of December 31, the Board of Investment managed a total of $135.7 billion in assets, made up largely of money connected to pension and retirement funds for current and retired public workers. Other assets are tied to things like state trust funds and agency cash accounts.
Initially, lawmakers said relevant investments tied to Russia were about $53 million before the invasion.
On Wednesday, SBI executive director and chief investment officer Mansco Perry III said much of their investments are in index funds, and staff did find some companies in the index that are in Russia. He said he didn’t have a list of them, and is waiting until the bill is law before they look further on what exactly they might have to divest from.
But he did say the investments are now worth even less amid sanctions and lack of interest in Russian companies. “Ten million and dropping,” Perry said.
Even selling some holdings might prove difficult. Perry said “my understanding now is that there’s no market,” meaning no one is buying and selling in the assets they have. The legislation says divestment must be done “to the extent practicable.”
Perry declined to comment on how the scope of the bill compares to previous state laws ordering divestment tied to Sudan and Iran.
Bill wouldn’t target Minnesota companies
The bill has been pushed in part by Ethan Roberts, director of government affairs for the Jewish Community Relations Council of Minnesota and the Dakotas.
Roberts said the bill would not target, hypothetically, a Fortune 500 company in Minnesota that may have a subsidiary in Russia, or that does some business in Russia. He said many companies are trying to unwind their work in Russia and may have contractual obligations.
And he said he didn’t want to set up a situation where the state considered Minnesota businesses so unethical for their work in Russia that the state divests pension funds from them and won’t invest in them going forward.
Some Minnesota companies or businesses with ties to the state have come under scrutiny for connections to Russia. Cargill has said it’s scaling back business in Russia but had been criticized by environmental groups — though Cargill is privately owned so there could be no state investment in it.
Glencore, which is the majority owner of PolyMet Mining, a company that plans to build a controversial copper-nickel mine in northeast Minnesota, has faced criticism for past dealing with Russia and some current ties.
The Star Tribune reported in early March that several Minnesota companies have offices in Russia or Ukraine, including Cargill, 3M, Medtronic and Ecolab, and that Polaris halted sales or exports to Russia. Medtronic told the paper Russia and Ukraine represented less than 1 percent of its sales in 2021.
State Economist Laura Kalambokidis said earlier this month that Russia and Ukraine aren’t significant trading partners for Minnesota. “That is not to say there aren’t important Minnesota businesses that do have exposure in Russia and Ukraine,” she noted, however.
But Roberts said they’re really targeting companies like Gazprom, or some Russian business “fully in bed with the Kremlin” that nobody wants their pension fund associated with. “The only companies we’re going to be divesting from is companies which principal place of business is in Russia or Belarus,” Roberts said.
Despite the relatively low value of the state investments tied to Russia and Belarus, supporters of the bill say the action is important as a value statement and message. Bill sponsor Sen. Karin Housley, R-Stillwater, said during a hearing on the bill this week that the measure is also impactful “if every state and every country divest and let’s Russia know where we stand.”