THE ESG TIGHTROPE — Republican politicians aiming to punish Wall Street firms over sustainable investing policies that they say are hurting everyday Americans are meeting resistance from officials in their own states. The latest example is from Oklahoma, where the Public Employees Retirement System's board voted to retain its current roster of financial advisers, including BlackRock, after deciding that complying with a 2022 state law that bars doing business with firms accused of boycotting fossil fuels would violate its fiduciary duty. BlackRock, the world's biggest asset manager, was on the state's boycott list along with JPMorgan Chase, Bank of America and State Street. The conflict reflects the tension between GOP lawmakers looking to score political points by attacking companies over environmental, social and governance principles, and fiduciaries who are more concerned about their potential culpability for the financial costs the anti-ESG actions could impose on retirees and taxpayers. Oklahoma’s law permits exemptions in cases where fiduciaries determine that avoiding the blacklisted firms would result in a “loss in value.” Oklahoma state treasurer Todd Russ, the only OPERS board member to vote against the exemption, said he’s concerned that the fund isn’t complying with the law. “They were concerned they'd get sued if it cost the pension money,” said Russ, whose office publishes the state’s energy boycott list. “I told them I'm more concerned that we'll get sued if we're in violation of statute and state law.” Oklahoma Insurance Commissioner Glen Mulready, who has representatives on three different state pension boards, including OPERS, said that he was more concerned about lawsuits from the pensioners themselves and that he thinks the issue will come up for other pension boards in the state. “Everyone that I know of I think is probably leaning in the same direction and that is taking the exemption because of the financial impact on the pension fund,” he said. It’s not just Oklahoma doing the anti-ESG dance. In Texas, public pension funds have slow-walked divesting from firms on that state’s boycott list. Some funds in Kentucky have said complying with that state’s energy boycott law would violate its fiduciary duty. “The process has played out very differently throughout the states,” said West Virginia Treasurer Riley Moore, a Republican congressional candidate who leads an anti-ESG coalition that has spurred the divestment actions in red states. None of the major firms accused of boycotting coal, oil and gas are doing so. BlackRock, JPMorgan, Citi, Wells Fargo and Bank of America are among the leading fossil fuel financiers, a fact that has prompted speculation that the red-state complaints are more political than prudential. "We oppose efforts at all levels of government that would politicize credit and effectively allocate capital based on unrelated policy preferences,” said Blair Bernstein, a spokesperson for the American Bankers Association. Next up: Indiana, which will soon be coming out with a list of firms that officials say have made ESG commitments and therefore should not be doing business with the state pension system — though similar exemptions could be claimed as in Oklahoma. Indiana’s pension system has warned of high costs associated with the law. And let’s not forget about the backlash against the ESG backlash: A left-leaning nonprofit has launched new ads attacking five House Republicans for their support for anti-ESG policies stemming from the GOP’s “ESG Month” in July.
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