Sustainable Investing Act

The Sustainable Investing Act (PA 101-473) (the “Act”) was spearheaded by Illinois Treasurer Frerichs and signed into law by Illinois Governor Pritzker in 2019 with an effective date of January 1, 2020. It provides that all state and local government entities that hold and manage public funds should integrate material, relevant, and decision-useful sustainability factors into their policies, processes, and decision-making.

An amended version of the Act (PA 103-0324) was signed into law on July 28, 2023. The amendment requires that, effective January 1, 2024, investment managers disclose their sustainability integration process prior to the award of a contract when seeking to serve as a fiduciary for a public agency, pension fund, retirement system, or governmental unit in the State.

What is Sustainable Investing? Why is it Important?

Sustainability factors are used to more comprehensively analyze an investment based on its risk profile and return potential. This complements traditional financial and technical analysis. The use of sustainability factors has been shown to minimize risk and maximize returns and is considered a best practice in the investment industry. Integrating these factors helps public funds better fulfill their fiduciary duty.

The Act defines sustainability factors to include data and indicators related to (1) corporate governance and leadership, (2) environmental, (3) social capital, (4) human capital (including responsible contractor and responsible bidder policies), and (5) business model and innovation. 

Sustainability factors provide a more complete view of an investment, including its past performance and future potential. Sustainability factors have a material impact on business performance and long-term shareholder value; as such, investors have an interest in integrating them into investment decision-making processes.

The Universe of Sustainability Issues: Factors That Shape Investment Performance and Long-Term Value