By Clark Mindock and Ross Kerber
(Reuters) -A judge in Oklahoma blocked a state law that prohibits state pension systems from contracting with companies that limit investment in the oil and gas industry.
Oklahoma County District Court Judge Sheila Stinson on Tuesday issued a temporary injunction blocking enforcement of the law after finding retiree Don Keenan is likely to succeed in his lawsuit filed last year alleging the law violates the state constitution and is too vaguely written.
Oklahoma’s 2022 law is among dozens of Republican-sponsored bills across the country that aim to free fossil fuel companies from climate-driven constraints adopted by some Wall Street firms.
Other, similar laws touch on hot-button environmental, social and governance (ESG) topics like abortion rights and firearms.
At the same time, big asset managers have supported fewer shareholder climate resolutions or left industry efforts to reduce emissions, citing among other things that companies are already taking steps to address environmental concerns.
The Oklahoma law prohibits state agencies from doing business with financial firms that limit investments in energy companies, and requires the state treasurer to maintain a list of those companies even if they continue to own shares in fossil fuel firms. Treasurer Todd Russ last year included BlackRock (NYSE:BLK), Wells Fargo, JPMorgan Chase (NYSE:JPM) and Bank of America on the list.
In her ruling, Stinson said the state constitution requires retirement funds be managed for the exclusive benefit of their beneficiaries, but the law appears aimed at countering certain political agendas and to help the oil and gas sector. Stinson also said the law contains conflicting and unclear definitions for key terms.
In a statement sent by a representative, Oklahoma's Russ said, "I am solely looking out for the financial interests of the citizens of Oklahoma and its industries. This ruling is not going to stop the fight for Oklahomans against activists using ESG in state." Russ also said he is preparing to appeal the order.
Oklahoma is a major U.S. oil and gas producing state.
An attorney for Keenan declined to comment.
Legal experts say the judge’s decision, while specific to Oklahoma law, may illustrate legal vulnerabilities of other “anti-boycott” laws passed by Republicans in other states.
Robert Skinner, a lawyer at the law firm Ropes & Gray, said “the principles animating the court’s reasoning should resonate broadly" in other states with similar laws.
"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," Skinner said.
Bryan McGannon, managing director of sustainable investment organization US SIF, said the judge's action shows the anti-ESG laws are not in beneficiaries' best interests.
"Financial professionals, ultimately, should have the freedom to make the best investment choices for their beneficiaries without partisan legislative interference," McGannon said.