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SPRINGFIELD — Despite strong rhetoric from Gov. J.B. Pritzker and other top state officials demanding public pension funds divest more than $100 million in Russia-based assets, state lawmakers now say they won’t act until the fall veto session.

A key legislative proposal to force the pullout in the wake of the Russian invasion of Ukraine died in a Senate committee awaiting a vote.

Senate President Don Harmon, D-Oak Park, declined to be interviewed for this report, but his staff suggested the Senate had too little time before the session closed on April 9. The House bill — which passed by a vote of 114-0 on April 5 — was never taken up in the Senate chamber.

Liz Mitchell, Harmon’s spokeswoman, said the plan is to review the measure and take it up when they return in the Fall veto session.

Critics say that’s too little, too late.

“When you have a supermajority in both chambers and a Democratic governor, it’s a massive failure,” said Rep. Jim Durkin, R-Western Springs, the House Minority Leader. “It’s the right thing to do at the right time, and they have failed to do anything. It’s embarrassing. We could have been a leader on this.”

Durkin’s GOP divestment bill never made it out of committee.

In a written statement to the Better Government Association, Harmon promised action in retaliation for the Russian invasion that began on Feb. 24. He did not address the delay.

“The atrocities committed in Ukraine at Vladimir Putin’s direction are inhumane and inexcusable,” Harmon said in an email. “While the Illinois Senate can only do so much to respond, it is our belief that we must do what we can, including divesting ourselves financially from Russia and assisting Ukrainian refugees.”

According to a review of pension audit reports for nine of the major public pension funds — including five in the city of Chicago and three state pension funds — a combined total of nearly $112 million was invested in Russian equities, bonds and other assets at the start of the invasion.

Compared to the roughly $155 billion in total investments those funds comprise, the Russian slice is only a fraction of 1 percent.

Still, it was enough to prompt Pritzker to pen a letter to the state pension funds and investment boards four days after the invasion began calling for them to identify investments in Russian assets and companies for potential divestment.

On March 18, Pritzker and the leaders of the General Assembly released a statement where they pledged to work together to “advance legislation to remove any Russian companies from Illinois’ pension assets.”

Pension law in Illinois requires those managing funds to make decisions based upon the best possible outcomes for investments. Broad divestment decisions are made by the General Assembly, the Illinois Investment Policy Board and the Illinois State Board of Investments at the state level.

Divestment decisions can be complicated by the fact that many pension funds invest in larger pooled equity funds that might include prohibited investments, which means the pension managers would have to pull out of huge and sometimes profitable funds because of a relatively tiny prohibited investment.

In other cases, the pension funds themselves make more specific investment decisions. Consider the Illinois Municipal Retirement Fund, which serves many of the state’s public employees outside Chicago and Cook County.

A 2020 report by IMRF showed about $34.6 million invested in the Russian Federation. Holdings included Lukoil, a massive Russian gas and oil company founded in the former Soviet Union with a long history of sanctions, and Russia’s state development corporation, which is chaired by the Russian prime minister. Both were sanctioned following the invasion, and cratered in value during this time.

At its March board meeting, an IMRF resolution showed Russian assets dropping to $23 million, making up about 0.04 percent of the total portfolio.

The IMRF was one of two major pension funds reviewed already making moves to divest, regardless of state legislative proposals. The other is the Chicago Teachers’ Pension Fund.

CTPF identified $4.5 million in securities and companies based in Russia following the invasion. They voted March 10 to divest because they “present an unacceptable level of investment risk and are no longer prudent investments.”

The head of the fund said It takes time for funds to untangle themselves from these investments.

“We are working with our investment managers who understand our directive to divest from Russian assets as quickly as possible,” said Carlton Lenoir Sr., executive director and interim CIO of CTPF. “To date, the Fund has about $159,000 remaining in exposure to Russian assets. The markets in Russia have not been operating normally, which has presented challenges to divestment.”

Most of the largest funds in Illinois took a look at their assets following the invasion. Most said they are still waiting for direction. All of the Illinois state pension systems, and some of those in Chicago, say they have not made a move on these investments beyond an initial audit.

The Teachers’ Retirement System, the biggest fund in Illinois that represents teachers outside Chicago Public Schools, identified close to $59 million in assets in its portfolio.

TRS spokesman Dave Urbanek put the battle between fiscal responsibility and morality surrounding the issue into perspective.

“Letting go of an investment that’s making money, there’s a risk to that,” Urbanek said. “But you don’t want to be profiting off a war.”

Urbanek described the fund as waiting for direction from the state to act, similar to others.

“If the directive comes from on high, we will act. The call will go out to our managers, and they will sell.”

At the March board meeting of the Municipal Employees Annuity and Benefit Fund of Chicago, a fund attorney said it might be prudent to wait for advice from Springfield before making a decision.

MEABF identified $1.2 million in Russian holdings in its international equity portfolio. The Chicago fire department pension also identified its Russian assets, which shrank in value from $3.6 million to $1.6 million between February and March.

The fire department pension — The Firemen’s Annuity and Benefit Fund — identified about $185,000 invested in Gazprom, a Russian gas company that recently cutoff shipments to countries refusing to pay with Russian currency. The European Union president characterized the move as “yet another attempt by Russia to use gas as an instrument of blackmail.”

The State Universities Retirement System identified $22.7 million in exposure, about 0.1 percent of its portfolio.

Executive Director Johara Farhadieh of the Illinois State Board of Investments said state employee retirement systems’ Russian exposure was down to $40,000 on April 28.

The Policemen’s Annuity and Benefit Fund of Chicago did not disclose an amount of total Russian exposure, though its latest financial report showed it has some assets paid in Russian rubles.

Condemnation of Russia’s actions in Ukraine have been swift and nearly universal. The military incursion created Europe’s largest refugee crisis since World War II.

The United Nations voted to suspend Russia from the Human Rights Council in April because of “gross and systematic violations of human rights.” Organizations like Amnesty International and Human Rights Watch have documented rapes and executions by Russian soldiers, and President Joe Biden and other world leaders called for a war crimes trial. The U.N. Human Rights commission estimates about 3,153 civilian casualties since the start of the invasion.

A recent Washington Post/ABC News poll shows relatively broad support for increased economic sanctions on Russia and humanitarian and military support of Ukraine.

Large state and city pension funds throughout the country, including funds in Washington, New York, Connecticut and New Mexico, moved to divest from Russia following the invasion. Efforts are underway in other states including California and Florida.

Using pension investment decisions as a way to prompt social change has long been controversial. In the past, Illinois funds have divested from companies and funds related to Sudan, Iran and businesses that boycott Israel following direction from lawmakers.

The Illinois State Board of Investments creates a prohibited list of companies for the funds to consider. The most recent list does not contain companies or funds connected to the Russian invasion.

“How, as a society, should we think about our pension systems assets?” asked Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois-Chicago. “I also see this kind of scrutiny of investing in Russian assets as part of this larger movement.”

Funds have to decide if the short-term return on a company that is a heavy polluter, for example, is worth the potential impact down the road.

An Illinois law requires state agencies, including ISBI, to develop sustainable investing practices as part of their policies in 2020. These approaches can influence decisions on a wide range of industries, and reformulate how success is measured.

“Eliminating companies that make sweet drinks like Coca Cola, or junk food like McDonald’s, you’re potentially going to give up a certain amount of return by doing that,” said Kenneth Kriz, professor of public administration at the University of Illinois-Springfield.

Kriz, who was a public pension fund trustee and board member for more than a decade, thinks these decisions are critical in Illinois because of poorly funded pensions.

“I understand why the politicians want to get involved. It’s a symbolic move,” Kriz said. “But symbolic moves don’t often make for good investment decisions.”

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