Oklahoma Court Blocks Boycott Statute and Calls Out Legislature’s Anti-ESG Agenda

In a May 7 ruling, an Oklahoma state court judge granted a temporary injunction blocking enforcement of the Oklahoma Energy Discrimination Act of 2022. 

The statute prohibits the state’s public retirement plans from investing in companies that “boycott” fossil fuel producers.  Under the law, the state treasurer is charged with compiling a list of companies he believes to be engaged in boycotting (as broadly defined in the legislation), while any financial institution doing business with the state must verify in writing that it does not and will not boycott energy companies.  The individual asserting the challenge is an Oklahoma taxpayer and beneficiary of a state public employee retirement plan. 

The Oklahoma statute, like those in several other states, is based on a fundamentally false premise: that asset managers who incorporate climate-related risks into their investment process are somehow punishing energy companies in pursuit of a political or social agenda, rather than seeking to maximize investment returns for retirees. 

The court’s decision reflects the fact that just the opposite is true.  In reality, the legislature is furthering its own political agenda at the expense of retiree benefits.  Through this law, legislators want to paint themselves as defenders of the fossil fuel industry, but are improperly using public pension funds as their weapon.

The court was persuaded by the taxpayer’s argument that, because the law’s stated purpose is to counter the “political agenda” of asset managers and assist the oil and gas sector, the statute violates the state constitution’s requirement that public pensions be managed for the sole purpose of benefitting retirees. Unlike some similar statutes, the Oklahoma law permits fiduciaries to continue to hold investments with declared boycotters if they determine it would be imprudent to divest, and this fiduciary override has already been exercised in certain circumstances. 

The irony is that energy companies themselves recognize that climate-related risks are important considerations for their long term financial performance. This fact is discussed openly in the companies’ financial disclosures.  Asset managers simply recognize and incorporate these risks (and related investment opportunities) in managing pension funds and maximizing returns, as they have repeatedly explained to the Oklahoma treasurer and his counterparts in other states.  Although many elected officials prefer to ignore this basic financial reality, the court’s decision should help highlight this truth.

As a formal matter, the May 7 court decision applies only to the Oklahoma statute, finding that it likely violates specific provisions of the Oklahoma constitution.  That said, the principles animating the court’s reasoning should resonate broadly, including in other states with similar statutes, all of which have similar fiduciary requirements for pension investments. 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. These statutes (and similar bills under consideration) are tracked and described in our award-winning, interactive website, Navigating State Regulation of ESG. 

The Oklahoma decision – which the treasurer has stated he intends to appeal – is the latest in a series of court developments to recognize this basic premise that climate and other ESG considerations are fundamentally focused on financial returns, as we have discussed here and here.

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