Oklahoma judge puts state's controversial anti-ESG law on hold

An Oklahoma court temporarily halted an anti-environmental, social and governance law after a beneficiary of the state's public retirement system alleged it violates Oklahoma's constitution.

Plaintiff Don Keenan, a former president of the Oklahoma Public Employees Association, sought a temporary restraining order against the state and its treasurer, Todd Russ, in November 2023, alleging that the 2022 law and its implementation constituted government overreach and violated free speech rights protected by Oklahoma's constitution. Keenan's lawsuit is backed by three groups representing public state employees.

Financial firms use environmental, social and governance investment criteria to assess investment risks and opportunities, but ESG has become controversial in red states that say it is used to promote policies that hurt their economy.

In a May 7 order, Oklahoma District Court Judge Sheila Stinson wrote that Keenan could suffer "irreparable harm" if the Oklahoma Public Employees Retirement System (OPERS) followed the treasurer's directive and divested from banks banned from the state.

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," the judge wrote.

Stinson further suggested that the treasurer, in enforcing the 2022 law, had infringed on OPERS' mandate under the state's constitution. The retirement system had invoked an exemption under the anti-ESG law to avoid divesting from BlackRock Inc. and State Street Corp. and was later admonished by Russ for doing so.

"As stated by the treasurer in his notice to the OPERS board, the purpose of the act is to counter the 'political agenda' of certain financial companies and to assist the economic status of the oil and gas sector," the judge wrote. "The court finds a substantial likelihood that this stated purpose of countering a 'political agenda' is contrary to the retirement system's constitutionally stated purpose."

Oklahoma's Energy Discrimination Elimination Act of 2022 prohibits the state's public pension system and other public entities from engaging with financial firms that were banned after being found to violate the law. The treasurer's list of non grata lenders and underwriters includes major firms such as JPMorgan Chase & Co., Bank of America Corp. and BlackRock, all of which invest in fossil fuel industries.

The state's anti-ESG law has come at a cost for local Oklahoma municipalities, which have seen lending costs increase nearly 16% since the law's passage, according to a recent study by an economics professor at the University of Central Oklahoma. Towns and countries have faced $185 million in additional expenses as a result, the analysis concluded.

A bill seeking to shield municipalities from the state law failed in the Oklahoma legislature in April.