Judge permanently prohibits enforcement of Oklahoma's anti-ESG law

An Oklahoma judge on Friday issued a permanent injunction against the enforcement of a 2022 state law that led to four investment banks being banned from underwriting municipal bonds and the targeting of other financial firms for divestment purposes.

Oklahoma County District Court Judge Sheila Stinson took the action "based upon the act being unconstitutionally vague and violative of Oklahoma's Constitutional requirement that all pension benefits be used for the benefit of beneficiaries," according to Collin Walke, the attorney for a state pension recipient who filed the lawsuit last year against Oklahoma Treasurer Todd Russ.

In May, the judge issued a temporary injunction against the Energy Discrimination Elimination Act, which prohibits state and local government contracts worth $100,000 or more with companies determined by the Oklahoma Treasurer's Office to be "boycotting" the fossil fuel industry.

Following that ruling, Oklahoma Attorney General Gentner Drummond took over the defense in the case.

"We plan to appeal and hope we will be able to repair the damage at the Oklahoma Supreme Court," Phil Bacharach, Drummond's communications director, said in a statement regarding the judge's latest ruling.

The state treasurer has placed Barclays, Bank of America (BAC), JP Morgan Chase, Wells Fargo (WFC), BlackRock (BLK), State Street Corp. (STT), and Climate First Bank on a list of "boycotters." Wells Fargo (WFC) resigned in May 2023 as lead underwriter for a $500 million Oklahoma Turnpike Authority revenue bond deal after it landed on the list and was replaced with RBC Capital Markets.

The lawsuit, brought by retired state worker Don Keenan, came after the Oklahoma Public Employees Retirement System determined that commissions, taxes, and fees related to divesting from firms on the list would cost an estimated $9.7 million and tried to use an exemption in the law to avoid divestment.

A study released in April found Oklahoma's law boosted municipalities' borrowing costs by 59 basis points on average.

An effort to apply the act only to state agencies failed in the Republican-controlled Oklahoma Legislature earlier this year. Senate Bill 1510 passed the Senate in a 42-1 February vote, but fell short of passage in the House in a 40-44 vote on April 25.

Several states, including Louisiana, have enacted anti-environmental, social, and governance laws that seek to punish investment banks and financial firms for their policies on fossil fuel or firearms.