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Across the last few years, a number of powerful Republican lawmakers have attempted to enact bills into law that reduce the restrictions put on investors looking to fund companies with questionable environmental credentials.
While the wider trend is generally towards encouraging (often subsidising, through tax breaks and the like) eco-friendly investments (as particularly pushed through by Democrats), senior Republican officials have raised concerns over whether this represents an overstep by the government. Instead, they often advocate a laissez-faire approach – but ironically have now turned to law-making as well, introducing a number of bills designed to actually have the opposite effect.
Reuters analysis suggests that there were almost 100 ‘anti-ESG’ laws brought into force in 2023, compared with just 39 the year before. The Republican Treasurer in Utah shockingly labeled pro-ESG laws as ‘Satan’s plan’. ESG here is being used in a much wider context than just eco-friendly issues, however – other contentious areas of debate, like abortion, are also being drafted into state laws in various ways.
The specific bill in question here is an Oklahoma state law which prohibits state pension funds from engaging with companies that have taken pro-ESG steps. These are specifically companies which have actively limited their investment in the oil and gas industries.
It is worth noting that Oklahoma in particular is one of the most reliant states in the US for its oil and gas production industries, and so lawmakers often feel that these pro-ESG laws are stifling their own economies.
First, there is an ongoing lawsuit by retiree Don Keenan, who argues that Republican lawmakers putting this limitation on pension fund managers is not only detrimental to the environment, but also means they will not be able to act in the best interests of their beneficiaries. Specifically, the bill in question is argued to violate the state constitution as a result. The Oklahoma judge concerned felt that the lawsuit was very likely to succeed, and so has issued this temporary injunction on the anti-ESG bill in anticipation.
The judge noted in her ruling that the state constitution does require that the sole purpose of managing state retirement funds is for the benefit of beneficiaries, whereas this bill is viewed to be more explicitly political in its aims, thus violating the purpose of the entire system.
While this decision as it stands only directly affects the legal position in Oklahoma, it raises wider issues which are likely to arise across other states which are currently seeing similar bills being brought into force.
In an interview with Reuters, Ropes & Gray lawyer Robert Skinner said that ‘the principles animating the court’s reasoning should resonate broadly’ across state lines. Broadly echoing the judge’s comments in her reasoning, she also said that ‘many of these statutes are vulnerable to the same critique — that using pension assets as a political tool for the supposed ‘protection’ of particular industries runs afoul of state law mandates that pensions must be managed solely in the interest of retirees’.
The response has been extremely hostile from Republican lawmakers. Oklahoma governor Kevin Stitt stated that ‘we’re not going to let companies come into Oklahoma and attack our oil and gas industry’.
When the bill was initially announced (part of the Energy Discrimination Elimination Act 2022), governor Stitt tweeted: ‘I am grateful to State Treasurer Todd Russ for carrying out the Energy Discrimination Elimination Act. The state of Oklahoma will not do business with financial firms who boycott oil and gas companies and prioritise ESG over their fiduciary duty to Oklahomans’ retirement funds’.
Aspiring lawyers, whether solicitors or barristers, can take a great deal of talking points from this story into their interviews for training contracts, pupillages, and other opportunities.
Naturally, the most obvious focus here is on environmental law and matters of ESG. While specific work in the area of environmental law is perhaps more niche, almost every large corporate law firm (think Magic Circle, elite US, etc) now has to deal with these issues on a daily basis now as a result of how ESG concerns are being gradually adopted (whether for or against, as this article highlights) into legislation. This overlaps with many other practice areas as a result.
For example, lawyers interested in an area like tax will need to assess how pro-ESG laws coming into play affect their clients’ activities. One previous story you could draw upon in this space is our coverage of the upcoming UK carbon tax, for instance.
As many law students having studied the compulsory subject of Trusts law will also be aware, there are very specific rules in place (which lawyers need to be able to clearly communicate to their clients) regarding the (fiduciary) duties fund managers will owe to their beneficiaries. This is where the idea that the anti-ESG bill was putting wrongful limitations on fund managers’ ability to act in the best interests of retirees like Don Keenan comes in.
There is also a general sense of commercial awareness which aspiring lawyers are expected to demonstrate throughout the application process (both on the initial application form and later during interview discussions), and ESG has become an almost inseparable part of that conversation nowadays regardless of which part of the law you engage with. For example, this can mean understanding not only the legal situation regarding your client’s ESG duties, but also thinking more carefully about how making certain decisions is likely to affect their public image, etc – thinking strategically (perhaps more like a consultant at times), not just legally.
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