As Illinois continues to struggle to fund the state’s pension system, turmoil has now erupted around the country over the trend of investing in environmental, social and governance, or ESG companies. 

ESG funds claim to invest only in companies that do good things for the environment, and that employ fair labor practices, and are committed to diversity not only on their staff but also on their corporate boards.

In at least 24 states there is a backlash against public pension fund managers who make investment decisions based on ESG principles. Opponents say taxpayers should not have to bear the cost of underperforming funds because they reflect political beliefs that not everyone shares.

Florida recently banned managers from considering ESG requirements for their state pensions fund, and the Arizona attorney general has argued that public funds should not be invested in political causes.

Reasons Foundation Vice President Leonard Gilroy said during a virtual panel discussion Tuesday if a person wants to invest their own money in ESG companies, so be it.

“But when we’re talking about large public trusts that are essentially annuities for delivering promised pension benefits to public sector workers that are already at least a trillion dollars underfunded, we start to see some real conflict points arise there,” said Gilroy.

Illinois Treasurer Michael Frerichs has joined 12 other treasurers to take a stand in what they perceive to be a campaign to blacklist financial services firms that embrace ESG efforts.

The group wrote a letter titled “We are in it for the long term” and takes aim at states like Florida and Texas for creating “new policies and laws that restrict who they will do business with, reducing competition, and restricting access to many high quality managers.”

Frerichs faces Republican state Rep. Tom Demmer in the Nov. 8 election. Demmer couldn't immediately be reached for comment. 

Illinois has among the most underfunded public pension liabilities in the nation. The state’s auditor general put the state’s unfunded liability at around $140 billion, but the American Legislative Exchange Council has the figure closer to $533 billion.

Former CKE restaurant CEO Andy Puzder said making sure pensions are funded should trump whether a fund is investing in socially-correct companies.

“Maybe we should be a little concerned about trying to get their funding in-line with the obligations to pay benefits before we should start worrying about trying to get the net-zero carbon emissions or these critical race HR policies,” Puzder said during Tuesday's virtual discussion.