Environmental, social, and governance (ESG) investments continue to be a hot topic as the new state legislature prepares for its next legislative session. The majority of U.S. state legislative assemblies allow bills to be introduced in advance of a new legislative session to introduce legislation before the next legislative session begins. State politicians often use the pre-filing process as a way to indicate their top priorities ahead of a new session. Looking at trends in bills submitted in advance can help identify the proverbial “canary in the coal mine” that marks where the political winds will blow in the next Congress.
Below, we examine state-level legislation that has been pre-filed ahead of the start of the 2023 legislative session and identify three key trends we expect to see ESG investment legislation at the state level.
Key trends for 2023
1. ESG investment continues to be a hot topic: Five states have used pre-application processes to put ESG at the top of their legislative agenda.
So far, five states have proposed ESG investment laws during the pre-submission period. HB1049); Missouri (State legislature proposed four anti-ESG investment bills. SB177, SB316, SB50When SB200); Oklahoma (one anti-ESG investment bill: SB15); South Carolina (one anti-ESG investment bill: SB111); and Texas (three anti-ESG bills: HB982, HB709When HB645, 1 ESG investment bill, HB1091).
A proposed mix of ESG investment bills in Texas highlights the polarization of this issue. Three of the bills proposed are anti-ESG investment bills that seek to limit the use of ESG, and a fourth is his ESG investment bill that would repeal. SB13, Enacted by Texas in 2021, it is one of the country’s first anti-ESG investment bills.
2. New ‘model’ bill on horizon targets ESG scores: Three states have previously submitted legislation that seeks to limit the “discrimination” of companies based on their ESG scores.
three state legislatures (Arkansas, MissouriWhen Texas) saw pre-filed legislation that seeks to limit corporate discrimination based on ESG scores. This is a relatively new “type” of his ESG investment bill. A number of anti-ESG investment bills based on two models have been proposed and adopted by Congress in 2021-2022.this Morgan Lewis ML Benewitz blog post and finally with this articleWe categorized the first “type” as a “boycott bill.” It directs state-owned enterprises to withdraw from and refuse contracts with companies that have boycotted certain industries (fossil fuels, firearms, etc.). The second “type” is classified as “non-ESG investment bills” that prohibit the use of state funds for ESG and social investments.
Preliminary bills suggest that a third type of anti-ESG investment regulation could be trending in Congress in 2023. These bills prohibit public authorities from “discriminating” an individual or other company based on his ESG score or other value-based scores. This category generally prohibits government agencies from awarding contracts based on positive (or potentially negative) evaluations of ESG criteria.
Arkansas legislators advocate prohibition of ESG discrimination (HB1049), while legislators from Texas and Missouri each submitted three different iterations in advance (Texas’ version is HB982, HB709, When HB645and the Missouri version is SB316, SB177When SB50).
This type of proposed regulation is nothing new, but it was an outlier in the 2021-2022 legislative session. Missouri proposed a bill of this kind in February 2022. SB1171although it has never received enough votes to pass through a Senate committee (all three different pre-filed bills in Missouri are substantially similar to this one), Pennsylvania will pass September 2022. proposed this kind of bill to HB2799A total of four states have now proposed bans on ESG discrimination, and others are expected to follow suit and consider these types of bills in the next Congress.
3. If it doesn’t work at first: Some states are reusing anti-ESG laws that didn’t pass in the last legislature..
Some states are proposing new forms of ESG investment legislation, while others are retrying with the same laws that were rejected in the last legislature. Members of the Missouri and Oklahoma legislatures have previously submitted anti-ESG bills identical to bills proposed in previous legislatures that failed to get enough votes to enact legislation.Missouri Pre-registration SB177 same as failed SB1171 2022 Congress and Oklahoma Pre-Submission SB15 is similar to HB3144, He died in Congress in 2022.
This trend shows the importance of keeping in mind the failed anti-ESG legislation in the 2022 session. Some states may not have been able to pass these bills into law in 2022, but may seek reconsideration in the next Congress.
Also notable is the fact that many states that failed to enact anti-ESG legislation in 2022 have resorted to other methods to enact other forms of anti-ESG regulation. For example, the Arizona boycott bill, HB2473died in the Arizona House of Representatives in the spring of 2022, while the Arizona Treasurer issued a statewide binding investment policy statement In August 2022, legislation was enacted banning the consideration of ESG factors in investment decisions, effectively addressing the boycott bill’s failure to become law. Similarly, the Indiana legislature failed to pass a boycott bill. HB1224in the spring of 2022, but the Indiana Attorney General issued a binding document advisory opinion In September 2022, it banned the consideration of ESG factors in state investment decisions. The trend also highlights states that have not yet passed anti-ESG legislation, noting that they may try again or find another way to enact anti-ESG regulations in the new year. showing importance.
The field of ESG investing remains active ahead of regulatory changes for 2023, which could affect a vast range of corporate markets. Some ESG regulations are explicitly targeted only at financial services companies (e.g., Wyoming enacted HB0236), and many others, including the newest “type” ESG Prohibition of Discrimination, seek to limit the focus on ESG factors. Any Businesses operating within the state (e.g. Pennsylvania’s proposed HB2799).
In particular, state-level ESG regulations, including divestment provisions, apply only to state funds and public retirement plans (federal law preempts states from regulating private retirement plans. are discussed in detail in this article). These newly proposed regulations tend to focus on investments made for “ethical” ESG purposes (e.g. sales from oil and gas companies to address climate change concerns). , which makes implicit or explicit exceptions to the consideration of ESG factors for “financial concerns”. ” purposes (e.g., to avoid investing in an issuer based on potential regulatory risks related to contamination).
When considering these new developments, investment managers and fiduciaries should carefully consider the role ESG considerations play in their investment programs and ensure that ESG processes are clearly disclosed to investors. . Some of these new and proposed regulations apply to the company and/or its products.