A rough ride for Oklahoma’s anti-ESG boycott laws

Credit to Oklahoma’s state constitution for protecting the state’s retirees from lawmakers trying to inject political wishes into public investments.

The Oklahoma Energy Discrimination Elimination Act (EDEA) prevented state entities (including pension funds and municipalities) from doing business with banks and financial advisers allegedly discriminating against the fossil fuel industry. It was passed in 2022, as part of a wave of model legislation pushed to create state boycotts of financial institutions accused of taking environmental, social, or governance (ESG) factors into account in their financial decisions.

Last week, OK Judge Sheila Stinson issued a summary judgment declaring the law unconstitutional.

Stinson added three additional violations to the existing injunction blocking the enforcement of the state’s law. That law was challenged by a retired state employee who sued to prevent harm to taxpayers and retirees from the state’s creation of a blacklist.
 
The judge previously blocked enforcement of the law based on two counts. In the summary judgment, she expanded on that, saying the law violates constitutional protections of due process and free speech of the affected companies, is unconstitutionally vague, and conflicts with a constitutional provision that bars consideration of non-financial factors in those public investments.

In 1992, Oklahoma voters amended a clause in the constitution now known as the “exclusive benefit provision” to the state government’s foundational document. It says this:

“All the proceeds, assets and income of any public retirement system administered by an agency of the State of Oklahoma shall be held, invested, or disbursed as provided for by law as in trust for the exclusive purpose of providing for benefits, refunds, investment management, and administrative expenses of the individual public retirement system, and shall not be encumbered for or diverted to any other purposes.”

That provision is one of several reasons why, 32 years later, Stinson ruled the state’s anti-ESG law unconstitutional. The blacklist law went out of bounds by adding political concerns over ESG investing to the list of what the constitution said can be considered in the state’s financial decisions.

“This ruling is a victory for current and future retirees who depend on Oklahoma’s pensions for their financial security, as well as for the state’s taxpayers and businesses,” said Tim Hill, president of the Alliance for Prosperity and a Secure Retirement (APSR).

“First responders, teachers, and other public employees deserve sound financial management of their pensions without the increased risks that come when political agendas are added to the mix,” he said.

“We’re happy to see the courts agree and impose a strong permanent injunction to this law that protects Oklahoma pensioners and taxpayers,” Hill said. “I hope other states considering similar laws are paying attention.”

Oklahoma Attorney General Gentner Drummond is appealing Stinson’s ruling to the state’s Supreme Court. In a news release, he blamed State Treasurer Todd Russ for the state’s failure to protect the law, saying Russ should have had the AG representing his office from the outset of the case.

“I am committed to repairing the damage done by the treasurer and his hand-picked attorney,” Drummond said. “Frankly, Oklahomans deserved better than allowing this law to be jeopardized.”

Taxpayers, who had been paying for the higher costs of borrowing associated with the law, are now paying for the lawyers arguing over the resulting litigation. Oklahoma lawmakers are reportedly considering other alternatives to the original law that in an attempt to get around the court’s rejection.

And Oklahoma’s legal problems around the anti-ESG law don’t end there.

Treasurer Russ and his chief of staff, Jordan Harvey, were sued by FOIA Professional Services, which accuses them of failing to produce — and possibly destroying — public documents that were subject to an open records request.

As reported by Pensions & Investments and Oklahoma Energy Today, the company is after documents related to the state’s ESG blacklist and communications — reported by Oklahoma Watch — between the treasurer’s office and outside organizations promoting development of the state’s boycott.

The plaintiffs are asking the courts to order the state to release the documents to the public.