As Oklahoma officials squabble, attorney general defends anti-ESG law

Oklahoma’s legal fight to reinstate its “anti-ESG” law will continue amid a public squabble between two elected officials who support the law.

Oklahoma’s Energy Discrimination Elimination Act of 2022 prohibits state and local government contracts worth $100,000 or more with companies determined by the Oklahoma Treasurer’s Office to be “boycotting” the fossil fuel industry.

In July, a state district court judge issued a permanent injunction blocking enforcement of the law, which while it was enforced led to four investment banks being banned from underwriting municipal bonds, among other consequences. 

Oklahoma Attorney General Gentner Drummond announced last week his office is appealing the district court’s ruling to the Oklahoma Supreme Court.

In so doing, he criticized State Treasurer Todd Russ for his office’s earlier handling of the case.

Drummond said the treasurer’s poor judgment has created unnecessary obstacles for the state’s defense of the law. 

“There is a great deal of lost ground to make up on this litigation after the treasurer and his hand-picked legal counsel failed in district court,” Drummond said in a statement. “I will not let that failure deter my efforts to protect Oklahoma’s oil and gas industry from discriminatory practices by financial entities kowtowing to a radical environmental agenda. My office is committed to a vigorous defense.”

Russ defended his office’s record.

“During this case, I’ve followed my statutory responsibilities with diligence and transparency, adhering strictly to the law, with decisions related to the legal defense, including the choice of legal counsel,” he said in a statement emailed to The Bond Buyer. “I remain focused on ensuring the financial security of Oklahoma’s public funds and supporting our vital energy industry, which is the backbone of our economy. I encourage all state leaders to work together constructively toward those shared goals.”

In October, Russ, his office and his chief of staff and deputy treasurer Jordan Harvey, were sued by an open-records company that accused them of withholding and possibly destroying documents related to the state’s controversial law targeting firms that employ environmental, social and governance-minded investment practices.

The company specifically accused the treasurer of withholding and possibly destroying documents sent to Harvey’s personal account from outside parties, emails that she later forwarded to her state account and then to accounts at Gov. Kevin Stitt’s office.

Drummond and Russ, both Republicans, were each elected to their offices in 2022.

Oklahoma’s anti “boycott” law is among a series cookie-cutter laws enacted in many GOP-controlled states, mirroring model legislation the conservative Heritage Foundation posted on its website, advising states they “can enact legislation that generally requires companies that contract with the state to certify that they do not boycott or discriminate against companies to achieve woke political objectives.”

It’s part of a nationwide effort by GOP officials who have staked out positions against investments based on environmental, social and governance factors and are using state power to limit the freedom of scope for people and private enterprises to make ESG-guided investment decisions.

Drummond’s office said it took over the case in May, after the district court judge, Sheila Stinson, issued a temporary injunction against the law, which she made a permanent injunction in July. After that, Drummond said, he fired Russ’ chosen legal counsel and removed the treasurer from any decision-making authority involving the case.

Stinson followed up in October by granting summary judgment in favor of the plaintiff, Don Keenan, a state retiree.

The original Keenan v. Russ suit was filed after the Oklahoma Public Employees Retirement System determined that commissions, taxes, and fees related to divesting from firms on the state’s blacklist would cost an estimated $9.7 million.

The judge granted the original temporary injunction on the basis “that the claimant established a substantial likelihood of success on the merits of arguments as to its vagueness, and violation of a constitutional requirement relating to exclusive purpose,” according to an analysis published in October by a group of attorneys from Simpson Thatcher & Bartlett LLP, including partner Leah Malone, leader of the firm’s ESG and sustainability practice.

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The Simpson Thatcher attorneys noted other legal blows against anti-ESG laws and regulation, including a federal district court ruling that struck down Missouri investment rules that required broker-dealers and investment advisors to disclose and obtain written consent from customers to buy or sell an investment product based on ESG or other “non-financial” objectives.

The Missouri case was brought by the Securities Industry and Financial Markets Association, which argued that the rules imposed by Secretary of State John R. Ashcroft were preempted by two federal laws and violated the First Amendment by requiring firms to adopt and express the state’s position on the “nonfinancial” nature of ESG investing, and were unconstitutionally vague.

Stinson cited the SIFMA v. Ashcroft opinion in her ruling against the Oklahoma anti-ESG law.

Days before the May preliminary injunction against the Oklahoma law, Russ added Barclays to the blacklist of financial institutions deemed ineligible for state and local government contracts, including municipal bond underwriting, for violating the “boycott” law.

Barclays joined Bank of America, JP Morgan, and Wells Fargo, which were placed on the boycott list in 2023.

Researchers have found the anti-ESG laws, by reducing competition for state banking and underwriting business, raise costs for taxpayers.

In 2023, researchers at The Wharton School and Chicago Federal Reserve found bond issuers in Texas, an early adopter of anti-ESG laws, will incur $300 million to $500 million in additional interest on $31.8 billion of debt sold during the first eight months after the laws took effect Sept. 1, 2021.

A March study conducted for the Texas Association of Business Chambers of Commerce Foundation showed a spike in average underwriting spreads per $1,000 of bonds issued by Texas local governments since the laws’ effective date.