After being hit with a lawsuit because of the state’s anti-ESG law, Oklahoma Treasurer Todd Russ responded Friday, saying he will continue enforcing the law and improving Oklahoma’s economy and public investments through time-tested strategies.
In a statement released by his office, the Treasurer wrote, “Keeping ESG out of investing is necessary due to its broad goal complexity, unmanageable reporting framework and heavy-handed mandates.”
ESG or environmental, social and governance is used by some investment firms to discriminate against the oil and gas industry. So the Oklahoma legislature responded a few years by creating the Oklahoma Energy Discrimination Elimination Act.
A lawsuit was filed last month by a retired state worker who claimed the law was “unconstitutional” and violated the First Amendment. Don Keenan further alleged the Act prevents state-managed pension funds from operating for the “exclusive benefit” of beneficiaries.
The statement issued on Friday was the Treasurer’s first public comments since the lawsuit was filed in Oklahoma County District Court. He made no direct reference or mention of the lawsuit.
Treasurer Russ responded by declaring ESG, used by institutions which in some cases are banned from investments by state pensons, is not intended to create shareholder value. He noted that during the November board of trustees meeting of the Teachers’Retirement System, members voted to divest $184 million in pension funds because “certain financial institutions were deemed to be supporting ESG causes negative to Oklahoma industries.”
Russ pointed out that ESG is not based on investment performance, is a management risk and is a risk betting on the future.
“An idea that once addressed only social responsibility, the name grew in scope and prevalence as climate change became a big part of today’s narrative. Keeping ESG out of investing is necessary due to its broad goal complexity, unmanageable reporting framework and heavy-handed mandates,” added the treasurer.
As a result of the Treasurer’s enforcement of the 2022 Act, several major institutions are banned from being part of Oklahoma’s state pension programs. They include BlackRock, JPMorgan Chase, Wells Fargo, Bank of America, State Street and Climate First Bank.
The Treasurer has faced criticism not only in the lawsuit but from the Oklahoma Public Employees Association, the Keep Oklahoma’s Promises Coalition and the Oklakhoma Retired Educators Association.
“I object to my retirement benefits being depleted because the State of Oklahoma believes that making political statements with retiree dollars is more important than taking care of retirees themselves,” Keenan said in an affidavit accompanying his lawsuit which had the support of the OPEA.
“The decision to pursue legal action against Todd Russ was not taken lightly, but we feel it is necessary to strengthen the fiduciary responsibility of our pension systems,” OPEA’s executive director, Tony DeSha, said in a press release made at the time of the filing of the suit.
Keenan’s lawsuit (CV-2023-2762) asked for a temporary restraining order against the Act. A hearing was rescheduled to Friday, Dec. 17 at 10 a.m. before District Judge Sheila Stinson.
The following is the Treasurer’s entire statement:
The Oklahoma State Treasurer’s office plans to continue improving Oklahoma’s economy and public investments through time-tested strategies and Oklahoma’s best industries to increase our state’s growing $15.5 billion portfolio. Today’s investment landscape contends with environmental, social and governance or ESG. An idea that once addressed only social responsibility, the name grew in scope and prevalence as climate change became a big part of today’s narrative. Keeping ESG out of investing is necessary due to its broad goal complexity, unmanageable reporting framework and heavy-handed mandates.
ESG is not intended to create shareholder value. During the November board of trustees meeting of the Teachers’ Retirement System, members voted to divest $184 million in pension funds because certain financial institutions were deemed to be supporting ESG causes negative to Oklahoma industries. Joseph Cappello, Deputy Chief Investment Officer, told the Teachers’ Retirement System board, “We are very comfortable if you choose to divest.” Cappello detailed the $61 million in bonds in question would cost the system roughly $34,000 or 0.17 percent to divest.1
During the Tobacco Settlement Endowment Trust Fund board of investors meeting in November, board members voted to select a new firm to manage the trust’s passive large-capital growth portfolio. The divestment and management switch will cost nothing, plus provide additional benefits in reducing cost and fees to the trust by nearly 74%.
ESG is not based on investment performance. During a U.S. House Ways and Means Committee “Ensuring ‘Woke’ Doesn’t Leave Americans Broke” hearing in November, Marlo Oaks, Utah’s State Treasurer, testified about the dangers of ESG turning into a scheme that “dangerously moves the market to one view. The perspective of a small group of like-minded individuals that is generally subjective and controversial.” Oaks continued, “ESG has created an uncontrollable impulse to pressure U.S. corporations to solve complex global and societal issues. These issues such as climate, income, inequality, guns and abortion to name just a few should be in the purview of a democratically elected government” and not Wall Street.
ESG is a management risk. Mason Bolay, from First Bank & Trust in Perry, Okla. also testified at the hearing on how ESG hurts two non-energy industries in Oklahoma, farming and agriculture. Bolay stated, “Government mandates imposing ESG principles, though well-intentioned, adding more environmental regulations and sustainability demands can place significant financial burdens on farmers and ranchers.” Bolay continued, “Instead of government mandates imposing ESG principles … passing a strong, improved Farm Bill would help maintain and strengthen crop insurance and ensure those sectors remain viable.”
ESG is a risk betting on the future. Non-financial, “purpose-driven” investing is not based on performance and needs careful evaluation and diversification as any new factor is introduced into a market. Evaluating our state’s relationship with financial institutions has proven to enhance agency partnerships with better cost and fee structures, resulting in strengthening fund growth and increasing returns to beneficiaries—not money managers, political movements or other third parties.
Source: press release