Judge halts enforcement of Oklahoma’s anti-ESG “blacklist” law

An Oklahoma judge, noting the potential risk to current and future retirees, temporarily blocked the state’s anti-ESG blacklists against allegedly “woke” investment advisers.

The state law called for a boycott of banks and advisory firms thought to be discriminating against the oil and gas industry by including environmental, social, and governance (ESG) factors in their investment decisions.

The Oklahoma Public Employee Retirement System, or OPERS, found that being forced to comply with the state’s blacklist would cost almost $10 million — money that would otherwise be in the fund for current and former state employees who rely on the pension for their retirement security.

As a result, the OPERS Board overwhelmingly voted to exercise a financial responsibility exemption, saying it would be a violation of its fiduciary duty to abide by the list. The state Treasurer, who assembled the blacklist, was the sole dissenting vote in that OPERS decision and said he would work to overturn it.

In December, a state retiree named Don Keenan sued the state, claiming the blacklist law, and the potential for the forced divestment at OPERS,  violates a state constitutional protection “which requires state managed pension systems to operate for the ‘exclusive benefit’ of their beneficiaries (i.e., the funds may not be used for political warfare).”

And on May 7, a Republican appointed District Court Judge Sheila Stinson issued a temporary restraining order suspending the enforcement of the state’s blacklist while arguments from Keenan and the state are ultimately heard in court.

“The Court finds a substantial likelihood that this state purpose of countering a ‘political agenda’ is contrary to the retirement system’s constitutionally stated purpose,” she wrote. “An attempt by the Treasurer or the Board to divest or transfer funds for any purpose other than the benefit of the members or beneficiaries is contrary to and a violation of Okla. Const. Art. 23, Section 12.”

“The issue before this Court is whether the Act and the directives of the Treasurer shift the constitutionally mandated exclusive purpose of the OPERS assets. The Court finds a substantial likelihood that Plaintiff will succeed on this issue.”

The Judge went on to write that “the Court finds that divesture or transfer of assets and investments has the potential to affect the financial soundness of the investment accounts. If the OPERS Board reconsider their decision and follow the Treasurer’s interpretation, the system’s assets could decrease or increase in value and potentially substantially alter the stability of the investment funds prior to a final determination by the Court.”

“… Because Plaintiff’s challenges allege a violation of constitutional rights, this Court finds that Plaintiff has established a threat of irreparable harm should the Act be enforced.”

And with that, she temporarily prevented the state from enforcing its Oklahoma Energy Discrimination Act of 2022 until the full arguments raised in the lawsuit are heard in court.

This order preventing the enforcement of the Oklahoma blacklist law underscores the large costs facing taxpayers and retirees from policies enacted in states that limit and restrict financial institutions based on their alleged use of environmental, social and governance (ESG) factors.

For example, in Texas, the laws there have been estimated to cost that state’s economy $668.7 million, 3,034 fulltime permanent jobs, and $37.1 million in local tax revenue, according to an economic analysis commissioned by the Texas Association of Business Chambers of Commerce Foundation.

In neighboring Louisiana, the legislative auditor provided state lawmakers with an initial estimate of a proposed boycott list which found that the state’s four public pension funds would need to earn an extra $6.27 billion to cover the impact of a boycott.

Inserting politics into investment decisions and infrastructure development projects for schools and local governments increase costs and risks for retirees and taxpayers and in Oklahoma at least the courts are stepping up to put a pause before the costs become irreparable.