ML BeneBits


Anti-ESG state legislation continues to focus on public retirement plan investing and asset management. Over the last year, 18 states have proposed or adopted state legislation or regulation limiting the ability of the state government, including public retirement plans, to do business with entities that are identified as “boycotting” certain industries based on environmental, social, and governance (ESG) criteria. Since our last update, four states have either adopted or proposed legislation or other forms of regulation that would restrict ESG activities using state assets.

  1. Louisiana: The Louisiana state treasurer published a letter stating his and his legal counsel’s opinion that ESG investing is contrary to the Louisiana state law on fiduciary duties. The letter opines on existing state law and does not issue a new law, and therefore is not as “binding” of a legal authority as a state law explicitly prohibiting the consideration of ESG factors would be. Therefore, our updated chart classifies this as a “Position Statement” rather than a “Bill” or “Regulation.”
  2. Arizona: Arizona’s State Board of Investment adopted anti-ESG amendments to its investment policy, specifying that only “pecuniary factors” may be considered in the investment management of its assets.
  3. Indiana: The Indiana attorney general issued an advisory opinion stating that existing Indiana state law prohibits the state from considering ESG in its investment decisions. The advisory opinion interprets an existing law and does not issue a new law, and therefore is not as “binding” of a legal authority as a state law explicitly prohibiting the consideration of ESG factors would be. In Indiana, attorney general advisory opinions are seen as persuasive, and not binding, authority by state courts, although courts usually give them significant weight. Therefore, our chart classifies this as a “Position Statement” rather than a “Bill” or “Regulation.”
  4. Pennsylvania: Members of the Pennsylvania House of Representatives introduced H.B. 2799, which would prohibit businesses transacting in the Commonwealth of Pennsylvania from discriminating based on various criteria, including “a social credit score or an environmental, social or governance score or other similar values.”

As of the date of this writing, 10 states have adopted anti-ESG regulations in the form of state laws, investment resolutions, or attorney general/state treasurer opinions: Arizona, Idaho, Indiana, Florida, Kentucky, Louisiana, North Dakota, Oklahoma, Texas, and West Virginia.

Our updated chart summarizes the anti-ESG legislative and administrative mandates (Anti-ESG Regulation) that have been proposed or adopted in 18 states and classifies them into sub-groups by type of ESG activity that is restricted under the proposed or adopted bill or regulation.

Boycott Bills

Boycott Bills target “financial institutions” that “boycott” or “discriminate against” companies in certain industries and prohibit the state from doing business with such institutions and/or investing the state’s assets (including pension plan assets) through such institutions. Boycott Bills most commonly target “discrimination against” fossil fuel–related energy companies, but some states have also targeted companies that “boycott” mining, production agriculture, or production lumber.

No ESG Investment Regulations

No ESG Investment Regulations prohibit the use of state funds for the purpose of ESG or social investment. Under this type of Anti-ESG Regulation, the state would be specifically prohibited from investing in strategies that consider ESG factors for any purpose other than maximized investment returns. Currently, there are states that have enacted No ESG Investment Regulations in the form of (1) bills adopted into law (such as North Dakota and Idaho), (2) binding regulatory action by state investment boards (such as Arizona and Florida), and (3) persuasive regulatory actions by other state officials, including the attorney general and state treasurer (such as Indiana and Louisiana).

Note that the newly proposed Pennsylvania bill would go further than prohibiting state investment in companies that consider ESG, as it seemingly would prohibit any business from operating in Pennsylvania if such business “discriminated” based on ESG factors.

If you have any questions about how these state regulations may impact retirement plan investments or impact investing, corporate activities, or investment products, please reach out to the authors or your usual Morgan Lewis contacts.