ESG Battlegrounds:
How the States Are Shaping theRegulatory Landscape in the U.S.

Updated as ofDecember 2023

When it comes to ESG in the United States, among the most dramatic developments
is an ideological battle unfolding at the state level, pitting liberal-leaning state
governments that have embraced ESG-focused investing against conservative-led
states that would seek to exclude it.

To date, the general consensus has been that the U.S. is lagging on its ESG focus, particularly incontrast to the EU and UK where investor, political and societal support has generally been strong.
U.S. federal agencies have been slower to propose and adopt rules in this area than their European
counterparts. As a result, much of the activity on the ESG front remains the subject of privateordering, where companies are offering disclosure and making commitments in response to investorand stakeholder demands rather than regulatory requirements.
But over the past year, the picture has shifted. Federal agencies are placing more focus on ESG
disclosure and performance,1 and federal legislators are debating the merits of ESG and its role in U.S.
capital markets.2 At the state level, the vast majority of U.S. states have stepped up their lawmaking,seeking to define the future of the ESG-related regulatory environment with widely divergent
approaches—most recently California with four broad new sustainability disclosure requirements
signed into law last month.

1

See our previous client alerts discussing the U.S. Department of Labor ESG Rule (here); SEC ESG and Climate Task Force (here); SEC rules relating to cybersecurity risk management,
strategy, governance and incident disclosure (here); and the SEC’s continued work on additional ESG-related disclosure rules (here). Briefly, the SEC’s much anticipated Climate
Disclosure Rule is still being finalized, as is the ESG Disclosures for Investment Advisors and Investment Companies Proposed Rule. The FTC will most likely update its Green Guides,
having requested public comments for potential changes, but has provided no timeline. Lastly, the CFTC has asked for public assistance reporting potential fraud related to carbon
markets and offsetting in an effort to mitigate fraud and increase accountability associated carbon markets.

2

In July 2023, House Republicans of the Financial Services Committee held six hearings and proposed a number of bills targeting the influence of ESG initiatives in the U.S. financial
system, addressing the shareholder proposal and proxy voting process and the SEC’s proposed Climate Disclosure Rule (among others).

Simpson Thacher & Bartlett LLPThese state measures focus primarily on state-sponsored investment restrictions, though some newlaws cover other ESG-related topics. 3 Individually and collectively, these developments are further
fracturing an already complicated landscape for financial services companies, including private
investment managers that invest money on behalf of state pensions. Meanwhile multistate initiatives
are taking aim at individual asset managers, banks and proxy advisory services perceived to be driving
ESG growth.4 In at least two states, financial institutions have fought back.5
Much attention has focused on so-called “anti-ESG measures”—those prohibiting the consideration of
ESG factors when investing state funds or targeting companies that “boycott” or discriminate against
industries such as fossil fuel or firearms companies—and the organizations behind them.6 Other
measures perhaps best described as “ESG-neutral” have emerged.7
In some states, more extreme versions of ESG-focused legislation were scaled back or have failed toprogress, as a result of powerful opposition constituencies reacting to real or perceived increases to3

Arkansas, Iowa, New Hampshire and New Hampshire have enacted legislation rolling back child labor protections; lawmakers in other states have introduced similar bills. Minnesota
enacted a law that applies a standard to utilities to supply customers with electricity generated or procured from carbon-free sources. Earlier this year, Alaska‘s Governor announced abill package to introduce the state to the emerging carbon markets, under which the state’s Department of Natural Resources would be authorized to promote and provide geologic andbiologic sequestration. Of that bill package, Alaska SB 48 was signed and became effective on May 24, 2023. Several state bills would seek to prohibit state or local investments incompanies that do business with or in certain foreign countries, or in businesses owned or operating by certain foreign governments or non-governmental organizations.

4

Notable examples include:

Several State AGs and Treasurers have announced the divestment or planned divestment from major asset managers on the basis of ESG investment practices, though in atleast one case a “truce” will reportedly allow the asset manager to continue overseeing pension assets.



In October 2022, 19 State AGs initiated a coordinated investigation by issuing civil investigative demands to the six largest U.S. banks, seeking information relating to thebanks’ participation in global climate change initiatives such as the Net-Zero Banking Alliance (NZBA) and the Glasgow Financial Alliance for Net Zero (GFANZ), based on
purported antitrust and consumer-protection concerns. Five states joined but cannot be named due to state laws or regulations regarding confidentiality.



In January 2023, 21 State AGs signed a letter to two prominent proxy advisory services, ISS and Glass Lewis, stating that the firms had “potentially violated their legal andcontractual duties as proxy advisers, with respect to advocating for and acting in alignment with climate change goals,” and seeking responses to questions concerning how ESG
considerations affect their proxy voting recommendations.



Led by Florida Gov. Ron DeSantis, the governors of 19 states formed an alliance on March 16, 2023, to force change in the use of ESG factors in asset managers’ investment
decisions and limit financial institutions’ ability to use social credit scores, among others. The coalition has not taken any formal steps, though various policy points are
mirrored in anti-ESG legislation signed into law in Florida (discussed below), and Gov. DeSantis has made an anti-ESG push part of his 2024 presidential campaign.

On March 30, 2023, 21 State AGs signed and sent a letter to 50 asset management firms claiming a breach of fiduciary duties relating to the inclusion of ESG factors inmanagers’ investment decisions, and antitrust violations implicated by their involvement in climate-related coalitions. At least some of these states have followed up with civil
investigative demands seeking information about the asset managers’ participation in the Net Zero Asset Managers initiative (NZAM).

In May 2023, 21 state financial officers signed and sent a letter to 20 asset management firms and two proxy advisors requesting information about how decisions andrecommendations regarding ESG-related proxy voting matters are determined. The letter also asked for details regarding how the firms determine which shareholder proposals
to support and what their potential impact will be.

On May 15, 2023, 23 State AGs signed and sent a letter to insurance company members of the Net-Zero Insurance Alliance (NZIA), some of which are also members of the NetZero Asset Owner Alliance (NZAOA).

On May 19, 2023, 22 State AGs signed and sent a letter to several banks targeting their emissions reduction positions.

5

Following passage of a Kentucky bill that targets banks that engage in deemed energy company boycotts (discussed below), Kentucky’s AG issued subpoenas and civil investigative
demands to various banks and announced plans to investigate their involvement with the NZBA. The Kentucky Bankers Association sued the State AG, alleging freedom of speech andfreedom of association violations, among others. See Ron Lieber, “The E.S.G. Fight Has Come to This: Bankers Suing Lawyers; your money,” The New York Times 2/24/23, available
here. The State AG responded by removing the lawsuit to federal court; but the federal district court remanded the case back to state court. Separately, a leading trade organization hassued the Missouri Secretary of State following the passage of a new Missouri securities rule (discussed below) that requires broker-dealers to disclose to customers in cases where they
consider a nonfinancial objective when purchasing or selling an investment product. See Niket Nishant, “Top Trade Group Mounts Legal Challenge Against Missouri after ESG
Backlash,” Reuters 8/10/23, available here.

6

Several bills and certain laws in force are reported to have been patterned on model bills drafted by the American Legislative Exchange Council (ALEC), a national policy organization
known for drafting conservative model legislation with key industries and encouraging their introduction in state legislatures. See David J. Berger, David H. Webber and Beth M.
Young, “The Liability Trap: Why the ALEC Anti-ESG Bills Create a Legal Quagmire for Fiduciaries Connected with Public Pensions,” 2/15/23, available here. Notably, following aunanimous vote by ALEC’s energy task force in December 2022 to adopt one of the bills (the anti-boycott bill), ALEC’s board declined to approve the measure in January and sent itback to the task force for reconsideration. See ABA Banking Journal, “ALEC board rejects model anti-ESG bill,” 1/23/23, available here. See also Julie Bykowicz, “Conservatives Have a
New Rallying Cry: Down with ESG,” Wall Street Journal, 2/27/23, available here (describing a new, multimillion dollar initiative led by a former Federalist Society member to drive
anti-ESG legislation and communications).

7

For example, in June 2022 Louisiana enacted a taskforce by law to issue recommendations regarding the regulation of ESG factors in lending and investment practices, and also an
ESG Criteria Study Group to issue recommendations regarding the regulation of the use of ESG factors in lending and investment practices. Four months later, the state removed $794
million in funds from a major asset manager on the basis of ESG investing strategies it employed. Massachusetts lawmakers, having already established an ESG committee to serve thestate pension reserves investment management board, and having proposed various pro-ESG bills, are pursuing a bill to establish a committee to consider climate risk associated withstate pension reserves investments and to assess divestment readiness.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

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the cost of capital,8 or to compliance-related challenges.9 According to one report, at least 165 antiESG bills and resolutions were introduced in 37 states from January to June 2023, despite legislative
reports citing potential state losses in the billions, but only a handful of these bills became law orresolutions passed.10
The number of pro-ESG bills that have become law is also small.11 More extreme measures on bothsides, anti- and pro-ESG, have prompted some observers to sound the alarm that the United States
may be straying from the fundamental purpose of ESG factors—as a valuation metric to gauge
corporate success.12
Whether, how long and to what extent the shift in ESG regulatory power remains with the states is yet
to be seen, as federal actors are beginning to be more attentive to ESG issues. For now, in the UnitedStates, the term “ESG” continues to be remarkable in its political divide. Below, we unpack current
state-level developments focused on ESG investing and contracting. We offer the following high-leveltakeaways:

We expect the stream of anti- (and-pro) ESG initiatives to continue, with failed or pending measures possibly
reintroduced in future legislative sessions, particularly as the 2024 U.S. presidential election approaches and theglobal ESG regulatory framework, including a growing web of EU-related ESG measures, comes into greater focus.
We also anticipate that where bills fail (or look likely to do so), some state actors may seek to pursue anti-(or pro-)ESG initiatives through administrative rules.13

The scope and nature of such measures will continue to evolve in reaction to the success or failure of similar
measures, the availability of data on the financial and non-financial impact of such measures,14 the continuingdebate as to the opportunities and challenges associated with ESG (including with respect to ESG and investor
returns, ESG ratings methodologies and measurement challenges, and inconsistencies in current reporting
standards), voter interest,15 organizational influence over lawmaking in state legislatures, and activities at thefederal level relating to how fiduciaries can consider ESG factors in investment decisions.16

8

At least two reports have addressed the impacts of anti-ESG measures on state municipal bond markets. See Daniel Garrett and Ivan Ivanov, “Gas, Guns, and Governments: Financial
Costs of Anti-ESG Policies,” U. Penn. 5/30/22, available here (reporting that Texas’ enactment of two laws, described below, has led five large banks that underwrote 40% of Texas’municipal debt to exit the state, which has decreased competition and increased costs for stakeholders, specifically adding $300 to 500 million to borrowing costs on debt issued in thefirst eight months after the laws were enacted); and “ESG Boycott Legislation in States: Municipal Bond Market Impacts,” The Sunrise Project, 1/12/23, available here (leveraging theU. Penn. study and anticipating potential costs to six states that have passed or are considering similar legislation and directives as those implemented in Texas). In some states, public
entities are pushing back against proposed legislation on the basis of calculated economic losses. See Debra Kahn, “Want to go anti-ESG? It’ll cost you,” Politico 3/17/23 available here.

9

The predecessor to California’s climate disclosure bill, discussed below, failed to pass the California Assembly, reportedly owing to a reporting requirement that extends well beyond
the climate disclosure rule proposed by the SEC. See also Ross Kerber, “Business fights back as Republican state lawmakers push anti-ESG agenda” Reuters (4/24/23), available here.

10

See, e.g., Pleiades Strategy, “2023 Statehouse Report Anti-ESG State Legislation Tracker & Analysis,” available here (tracking the status of and analyzing state ESG-related bills).

11

See, e.g., Joan Michelson, “Wave of ‘Anti-ESG’ Investing Legislation, New Study Found,” Forbes 8/29/23, available here (citing policy tracking firm Plural, which reports that in 2023,
42 pro-ESG bills have been introduced in 11 states with only one becoming law).

12

See, e.g., Daniel F.C. Crowley and Robert G. Eccles, “Rescuing ESG from the Culture Wars,” Harvard Business Review 2/9/23, available here. See also Robert G. Eccles, “It’s Time toCall a Truce in the Red State / Blue State ESG Culture War,” Harvard Law School Forum on Corporate Governance 5/29/23, available here.

13

For example, on June 1, 2023, Missouri’s Republican Secretary of State issued an administrative rule after a similar bill failed to pass in the 2023 Missouri legislative session. The newrule (discussed below) requires broker-dealers to disclose to any customer or prospective customer that they considered a nonfinancial objective when deciding whether to buy or sell acommodity or security on the customer’s behalf. Such disclosure requirement is satisfied with the customer’s written consent.

14

See n. 9.

15

See, e.g., Debra Kahn and Jordan Wolman, “Cracks in the anti-ESG foundation,” Politico, 1/24/23, available here (reporting that two-thirds of major clean energy projects announced
as a result of the Biden Administration’s signature climate change law, the Inflation Reduction Act, are anticipated to be located in Republican-held congressional districts).

16

Half of U.S. states have sued to block the U.S. Department of Labor’s (DOL) new rulemaking applicable to ERISA plans related to ESG factors, which we described here. However, theTexas district court judge denied the states’ motion for summary judgement, finding that the new DOL rule did not violate the Administrative procedure Act nor run afoul of ERISA.
The plaintiff states filed a notice to appeal this decision. See Daniel Wiessner “Republican-led US states appeal ruling allowing Biden ESG investing rule.” Reuters, 10/26/23, available
here. That rulemaking provides that an ERISA fiduciary’s consideration of ESG factors may, under certain circumstances, be consistent with ERISA’s stringent fiduciary duties. As wereported here, on 3/20/23, President vetoed the Congressional resolution—the first veto of his presidency. House Republicans have introduced legislation that would modify ERISA
and ban retirement plan fiduciaries from considering ESG factors when investing in retirement accounts.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

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The surge of anti-ESG measures poses significant legal, operational, reputational, political and financial concerns
for funds, asset managers and companies that integrate ESG investment into their policies, procedures anddisclosures, threatening state contracts and the removal of state funds from investment portfolios and thereinvestment of assets in the first instance. These laws include a variety of different applications and carve-outs,
and whether a company is in scope will depend on varied analysis in each state. Monitoring these measures andunderstanding the nature of conflicting requirements and associated risk will be essential.

As a general matter, these measures are still relatively untested, resulting in considerable uncertainty about theirultimate interpretation and implementation. In some cases, carve-outs may potentially be used to protect
investments and avoid compliance violations (at least in respect of entities not yet subject to blacklisting), butshould be approached with caution.

Simpson Thacher continues to maintain and update17 the following charts, available in two different
formats, measures by type and measures by state. These charts will also be available on our ESG
Practice Page.

1. State Measures Restricting the Consideration of ESG Factors inState Investment Strategies
As of December 2023, at least 20 states have enacted laws
or adopted regulatory action in the form of resolutions,policy statements or directives that seek to prohibit or
discourage public entities from considering ESG factors
when investing state resources (as set out in the tablebelow). These measures prohibit the consideration of“non-pecuniary” factors by public pension funds or stateand local government authorities and their investment
managers as being inconsistent with the exercise offiduciary duties. The measures define this concept
differently, but ultimately capture the use of factors otherthan those that seek specifically to maximize investment
returns.
Some measures contain important exceptions that would
allow public entities and their fund managers toincorporate ESG factors into investment decisions incertain circumstances. Whether these carve-outs are
motivated by a desire to protect against economic losses,
or a recognition of ESG’s relevance to many investors, isunclear.
The prohibitions generally apply to state pension and/or
state and local government entities’ fiduciaries, proxyadvisors and service providers. They essentially prohibit
in-scope entities from considering certain ESG factors inevaluating or managing an investment or, in some cases,
in proxy voting and portfolio company engagement. Some
attach significant penalties for noncompliance and/or
address what information state enforcement entities may
rely on as indicia of an investment manager’s prohibiteduse of ESG factors.
Here again, certain measures contain exceptions thatwould theoretically permit in-scope companies to comply
with the laws, while continuing to safeguard investments
made on the basis of investing strategies that incorporate
ESG factors. However, the definitions and provisions thatthe carve-outs employ are often ambiguous and, in nearly
all cases, untested.18 As a result, entities seeking toleverage potential exceptions are likely to encounter
difficulties in determining what their precise legal
obligations are. We finally note at least one case in whicha state ended investigations into financial institutions’
ESG investing practices, although the state’s policy
prohibiting considering ESG factors when investing state
resources remains in place.19

17

While most state legislatures are now either out of session or in recess, a few remain in session, and we may continue to see bills being passed until the end of the year. The in-session
states are Illinois, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont and Wisconsin. See e.g., National Conference of State
Legislatures, “2023 State Legislative Session Calendar” available here (tracking the status of state legislative schedules).

18

For example, several measures introduce a distinction between pecuniary and nonpecuniary factors but acknowledge circumstances in which nonpecuniary factors may be pecuniary,
and as such, would be evaluated in the context of a public investment or in exercising rights relating to the investment. However, the definitions of pecuniary and nonpecuniary arevague, over-broad and not mutually exclusive, such that entities will likely struggle to reasonably anticipate what their obligations are and/or could result in a situation where a factor
could be both pecuniary and non-pecuniary simultaneously. Certain measures that impose enhanced obligations on fiduciaries who have concluded that ESG factors are pecuniary
outline requirements that are vague and unclear (e.g., requiring them to examine the level of diversification, degree of liquidity and potential risk-return as compared to available
alternative investments, but without delimiting the population of alternative investments to evaluate).

19

Press release, “Arizona Attorney General Kris Mayes Announces Exit from Investigation into ESG Investment Practices,” 2/13/23.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

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Measure

Description

Exceptions / Notes

Requires public pension benefit plan fiduciaries to consider only
pecuniary factors in investment decisions

Acknowledges circumstances in which ESG
considerations may be pecuniary and evaluated inpublic investment decisions

Laws
Arkansas HB 1253, in
effect 8/1/23

Introduces requirements with respect to shareholder and proxyvotingFlorida HB 3, in effect
7/1/23Requires all state and local investment decisions to be made on
the basis of pecuniary factors only
Prohibits state and local entities from issuing ESG bonds

Exception re. proxy voting advisor requirements
where no economically practicable alternative
available
Wide-ranging law that includes other provisions.
See previous client memo for additional
information

Requires shareholder rights like proxy voting to be exercised only
on the basis of pecuniary factors
Requires retirement systems and plans to offer annual reportingto state governmental bodies on their governance policies, voting
decisions and adherence to fiduciary standards
Requires any communications between an investment manager
to a company in which the manager invests public funds onbehalf of a governmental entity that discuss ESG interests, or
advocate for an entity other than shareholders, to include aconspicuous disclaimer that the views are the sender’s and not
the state’s
Idaho SB 1405, in effect
7/1/22

Prohibits public entities including state investment boards fromconsidering ESG characteristics in investment decisions in amanner that could override the prudent investor rule
Requires notification by investment agents where they adopt orrevise a policy related to disfavored investments or investment
limitations identified as against the public policy of the state, andapplicable to state investments

Public entities serving as fiduciaries to selectinvestment options for investors may offer ESGpreferred investments to participants if they are
optional and sufficient alternatives are offered

Introduces requirements with respect to proxy voting
Indiana HB 1008, in
effect 7/1/23

Prohibits state public retirement system board from making an
investment decision to influence social or environmental policy,
or attempting to influence the governance of any corporation for
nonfinancial purposes, and prohibits system from making an
ESG commitment with respect to system assets
Prohibits board from contracting with a service provider that has
made an ESG commitment
Introduces requirements with respect to proxy voting

Does not apply to a bank holding company or asubsidiary of a bank holding company, defined
contribution plans, annuity savings plan or a
private market fundException to service provider contracting
prohibition where it would violate the board’s
fiduciary duty or there is no comparable
replacement service provider
Provides examples where a service provider may be
determined to have made an ESG commitment

Kansas HB 2100, in
effect 7/1/23

Requires state public employees retirement system assets to be
entrusted to a fiduciary with a practice of following guidelines
when engaging with portfolio companies to act solely on financial
factors

Alternative or real estate investments as defined instate law exempted

Introduces requirements with respect to proxy voting

Provides examples where a fiduciary may be
determined to have taken an action or considered afactor with a purpose of furthering social, politicalor ideological interests

Exception to investment restriction where no
economically practicable alternative available

Exception re. proxy voting advisor requirements
where no economically practicable alternative
available

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

5

Measure

Description

Exceptions / Notes

Kentucky HB 236, ineffect 6/29/23

Requires state-administered retirement system fiduciaries toconsider only pecuniary factors in investment decisions, andprohibits the consideration of or actions with respect to ESG
interests

Provides examples where a fiduciary may be
determined to have considered or acted on a
nonpecuniary interest

Introduces requirements with respect to proxy voting
Montana HB 228, in
effect 4/19/23

Requires state board of investments to consider only pecuniary
factors in public investment decisions
Introduces requirements with respect to proxy voting

Acknowledges circumstances in which ESG
considerations may be pecuniary and evaluated inpublic investment decisions
Exception re. proxy voting advisor requirements
where no economically practicable alternative
available

New Hampshire HB
457, in effect 8/29/23

Requires state retirement system independent investmentcommittee and board of trustees to file quarterly reports
regarding compliance with duty to make all investment decisions
solely in the interest of the participants and beneficiaries of thestate retirement system

Report must include the existence of any
investment funds that may have mixed, rather thansole, interest investment motivations

North Carolina HB
750, in effect 6/27/23

Restricts the State Treasurer and state pension plan fiduciaries’
investment decisions, and the evaluation or exercise of rights
appurtenant to investments, to pecuniary factors

May consider environmental or social
considerations as pecuniary factors only if qualified
investment professionals would treat these risks
and opportunities as material economic
considerations
May in evaluating or exercising any rightappurtenant to an investment reasonably conclude
that not exercising such a right is in the bestinterest of the fund’s beneficiaries

North Dakota SB
2291, in effect 3/24/21

Prohibits investment of state funds for purpose of social
investment

Does not apply where state investment board candemonstrate that a social investment has anequivalent or superior rate of return as compared
to a similar non-social investment with a similar
time horizon and risk

North Dakota HB
1429, in effect 8/1/23

Introduces requirements with respect to proxy voting

Same as North Dakota SB 2291 above

Prohibits insurers from refusing to insure or charging a different
rate based on ESG criteria, DEI policies, or political andideological factors

Insurance prohibition does not apply in cases
where the refusal or different rate is the result of
the application of sound underwriting andactuarial principles

Requires state bank to study ESG trends, laws and policies that
impact businesses in the state, and to issue a report of its findings
and recommendations
Tennessee SB 955, in
effect 5/17/23

Restricts State Treasurer to investment decisions based on
financial factors as opposed to ESG interests
Introduces requirements with respect to proxy voting

Utah SB 96, in effect
5/3/23Requires public entities to invest public funds in accordance withthe prudent investor rule

Acknowledges circumstances where ESG interests
may be material to the financial analysis of theinvestment and evaluated in public investment
decisions
Exempts certain funds

Introduces requirements with respect to proxy votingWest Virginia HB
2862, in effect 6/8/23

Introduces requirements with respect to shareholder and proxyvotingESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Includes an exception where “reasonable efforts”
have been made; does not require the board todivest from any private market funds or fromindirect holdings in actively or passively managed
investment funds

6

Measure

Description

Exceptions / Notes

Resolutions / Policies / Statements
Alabama, Attorney
General Written
Testimony, 5/10/23

Establishes that ESG policies threaten America’s democraticsystem, and that ESG must be stopped

Arizona, State
Treasurer’s Office
investment policy
statement, adopted
8/30/22

Prohibits consideration of non-pecuniary factors when evaluatingstate investments or discharging duties

Florida State Board of
Administration revised
investment policy, in
effect 8/23/22

Restricts state board evaluation of retirement system investment
decisions to pecuniary factors

Florida CFO Directive,
1/23/23

Prohibits asset managers from investing income of participantsin state’s deferred compensation program in financial products
associated with ESG standards

Georgia GeneralStatement of Investment
Policy, 9/15/22

Prohibits state employee retirement system trustees fromsacrificing investment returns or increasing risk to promote nonpecuniary interests, including furtherance of social, political orideological interests

Indiana Attorney
General Opinion, 9/1/22

Establishes ESG investing in the context of the state public
retirement system as a violation of fiduciary duties

Kentucky Attorney
General Opinion,
5/26/22

Establishes that stakeholder capitalism and ESG investment
practices are inconsistent with state law governing fiduciary
duties owed by investment management firms to state public
pension plans

Louisiana HCR 59, in
effect 6/4/23

Requests U.S. Securities and Exchange Commission to withdraw
proposed Climate Disclosure RuleLouisiana HCR 110, in
effect 6/7/23

Urges and requests state retirement system boards of trustees not
to allow ESG policies to influence their investment decisions

Mississippi Treasurer
letter to Public
Employees’ Retirement
System Board
Members, 11/14/22

Urges board to reject ESG policies and formally prohibit the useof nonpecuniary factors in investment policy

Missouri HR 12, ineffect 5/12/23

Urges the state and its executive officers, state agencies andofficials to oppose (i) a forced imposition of ESG policies, (ii)costs on state citizens related to the imposition of ESG policies,(iii) any action based on the assumption that net zero is likely tooccur, (iv) any SEC regulations or other climate-related rules, (v)any private governmental agency discussion on climate-change
risk and ESG policies and (vi) any policies of federal banking
regulators that require ESG to be used in the decision-making
process

Missouri 15 CSR 3051.170 6/1/2023
Amendment, in effect
7/30/23

Requires a broker-dealer or agent to disclose to a customer or
potential customer the incorporation of any social objective orother nonfinancial objective when buying or selling a security orcommodity

Introduces requirements with respect to shareholder and proxyvoting
Prohibits lending securities to any borrower with a practice of ora commitment to engaging with companies or voting sharesbased on non-pecuniary factors

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

On 2/13/23, the State AG announced that Arizonawould end investigations into financial institutions
pursuing ESG investing, which were initiatedunder the state’s previous AG; it is unclear how
and to what extent the statement affects
implementation of the revised investment policy

7

Measure

Description

Missouri 15 CSR 3051.172 6/1/2023
Amendment, in effect
7/30/23

Same as Missouri 15 CSR 30-51.170 above, but applied toinvestment advisers and their clients or prospective clients

Montana HJ 11, in
effect 4/14/23

Joint resolution urging (i) state congressmen to compel the U.S.
Senate Banking Committee, as well as the committees it oversees,
to withdraw or modify ESG investment policies for financial
institutions and (ii) the state division of banking and financial
institutions to avoid implementing examination policies or
guidelines beyond the scope of traditional “safety and soundness”
risk assessments

New Hampshire
Executive Order 202303

Establishes restrictions on ESG factors in state investments andassociated reporting

Utah SCR 9, in effect
3/14/23

Encourages State AG to furnish legal advice to the State
Treasurer and investment managers on various topics, to takelegal action to protect the state’s investments when necessary, toimplement investment policies that restrict the use of ESG
criteria, and to conduct audits of state investments

Utah, Attorney GeneralStatement before theU.S. House Committee
on Oversight andAccountability, 5/10/23

Urges committee to undertake various ESG-related
investigations, including on the role of proxy advisors and the
U.S. Department of Labor ESG Rule

Wyoming State
Treasurer’s Statementon its updated ESG
Policy, 5/3/23

Prohibits State Treasurer from considering factors that furthersocial, political or ideological interests in state investment
decisions

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Exceptions / Notes

8

2. State Anti-Boycott Measures Targeting Companies Doing
Business with State Governmental Entities
As set out in the table below, at least 15 states haveenacted laws restricting the ability of state entities to dobusiness with companies that “boycott,” or“discriminate” against certain industries disfavored by
the ESG movement (and in some cases other factors). In
at least two cases, states have established committees orcommissioned studies to consider such measures.
With respect to the former, several measures require or
authorize state regulators to develop and maintain a
blacklist of financial entities that engage in boycotts offossil fuel companies. Some laws compel companies
entering into contracts with state entities to attest, as acondition of doing business with public entities, thatthey do not and will not engage in boycotts againstcompanies in, for example, fossil fuel energy production
or firearms manufacturing, during the life of thecontract. A law in Texas limits state insurers’ ability toincorporate ESG factors into pricing;20 according to aletter the state’s governor sent to President Biden earlier
this year, the intention of the law is to ensure that
insurance companies do not hinder energy companies inorder to appease ESG advocates.21
Here again, certain key terms and concepts are definedin vague terms,22 raising questions as to what actions by
an in-scope entity would qualify as an economic boycott
or discrimination.
Certain measures contain important (but untested)
exceptions such as excluding decisions based on an“ordinary business purpose” from the definition of a“boycott,” and allowing public entities to avoid
divestment from blacklisted entities if contrary to theirfiduciary duties.

MeasureDescription

Exceptions / Notes

Alabama SB 261, in
effect 8/1/23

Contracting
Prohibits state governmental entities from entering into contracts
for goods or services (value at $15K or more) absent written
verification that the company does not and will not engage in an
economic boycott against fossil fuel, timber, mining, agriculture
or firearms companies, companies that do not meet or commit tomeet environmental standards or make DEI disclosures, orcompanies that do not facilitate or commit to facilitate access toabortion or sex or gender change treatments, during the term of
the contract

Exception
Does not apply to a contract relating to theissuance, incurrence or management of debt
obligations or the deposit, management, borrowing
or investment of funds
Anti-boycott requirement may be waived insituations where the governmental entity
determines it would significantly increase costs orlimit the quality of options or services available,
and a waiver would be in the best interest of the
public20

See our previous client memo for additional information.

21

See Governor Greg Abbott’s Letter to President Biden stating that, “Texas will expand [its] anti-ESG efforts even further with legislation to ensure that insurance companies do nothinder companies from [its] energy sector to placate ESG advocates.”

22

Applicable measures define “economic boycott” broadly, namely as “without an ordinary purpose” either “refusing to deal with,” terminating business activities with, or otherwise
taking any action intended to penalize, inflict economic harm on, or limit commercial relations with a company because the company is in the fossil fuel industry, does business withsuch companies, or does not commit or pledge to meet environmental standards beyond applicable federal and state law. Applicable measures also define “discrimination” broadly, as“refusing to engage in the trade of any goods or services” with an entity or association, to refrain from continuing a business relationship with the entity or association, or to terminate
an existing business relationship based solely on its status as a specific type of entity or trade association. As referenced above, following Kentucky’s enactment of a law that requires
the State Treasurer to maintain a list of financial firms that have engaged in energy company boycotts, the state AG launched an investigation of national banks “for alleged antitrustand consumer protection law violations related to ESG investment practices,” focusing chiefly on their involvement with the United Nations’ Net-Zero Banking Alliance.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

9

Measure

Description

Exceptions / Notes

Arkansas HB 1307, ineffect 8/1/23

Anti-Boycott – Listed Entities
Creates ESG Oversight Committee

Exception
An investment subject to divestment but locked
into a maturity date such that an early divestment
would result in a financial penalty and cause
negative financial impact to the state is exempt
from divestiture

Requires State Treasurer to maintain a list of financial services
providers (determined by the ESG Oversight Committee) that
discriminate against energy companies or firearms entities orotherwise refuse to deal with companies based on environmental,social justice, and other governance-related factors
Prohibits public entities from investing cash funds with a listed
financial services provider; requires State Treasurer and public
entities to divest state assets from all direct or indirect holdings
with a listed financial services provider
Arkansas HB 1845, in
effect 8/1/23

Anti-Boycott – Listed Entities
Clarifying what information the ESG Oversight Committee may
consider and rely on when determining whether or not to list afinancial services provider for divestment purposes

Arkansas SB 62, ineffect 8/1/23

Contracting
Prohibits public entities from entering into contracts for goods orservices (value at $75K or more) absent written verification thatthe company does not and will not engage in boycotts of energy,
fossil fuel, firearms and ammunition industries during the termof the contract

Exception
Does not apply to companies that offer to provide
goods or services for at least 20% less than thelowest certifying businessIdaho HB 190, in effect
7/1/23Anti-Boycott
Prohibits banks and credit unions designated as state
depositories from boycotting companies/individuals engaged in
the fossil fuel or firearms industries; requires state depositories
to file affidavits with the state treasurer, including an antiboycott certification; noncompliance is subject to revocation of
the QPD designation

Exception
Anti-boycott certification requirement does not
apply to state depository designation if it would beinconsistent with the constitutional or statutory
duties of the state treasurer or would negatively
impact the business needs of the state

Idaho HB 191, in effect
7/1/23Contracting
Prohibits public procurement decisions from being based on ESG
standards

Kansas HB 2100, in
effect 7/1/23

Contracting
Prohibits state and state agencies from discriminating based on
ESG factors in procurement decisions

Kentucky SB 205, in
effect 4/8/22

Anti-Boycott – Listed Entities
Requires (i) State Treasurer to prepare and maintain a list of
publicly-traded financial companies that have engaged in energy
company boycotts and (ii) state governmental entities to divest
from listed financial companies that do not cease energy
company boycotts within established timeframes; applies tostate governmental entities involved in state investment, deposits
or transactions above a specified threshold
Contracting
Prohibits state governmental entities from entering into contracts
for goods or services (value at $100K or more) with a company
absent written verification that the company does not and will
not engage in energy company boycotts during the term of thecontract

Divestment Exception
Allows a state governmental entity to ceasedivesting where reasonable evidence shows thatit has suffered or will suffer a material financial
loss
Does not apply where the state governmental
entity determines the requirements areinconsistent with the entity’s fiduciary
responsibility
Not required to divest from any indirect holdingsin actively or passively managed investment funds
or private equity funds
Notes: An initial list of financial companies was
released on 1/3/23
Contracting Exception
Does not apply if inconsistent with constitutional,
statutory or fiduciary duties relating to theissuance, incurrence or management of debt
obligations or the deposit, management,
borrowing or investment of funds

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

10

Measure

Description

Louisiana HCR 70, in
effect 5/30/23

Anti-Boycott – Listed Entities
Requires state, statewide retirement systems and the statetreasurer to submit a report to the legislature that includes thenames of (i) any investment management company, investment
advisor, mutual fund, or other entity in contract with the statethat uses ESG factors not directly related to risk-adjusted returns,
and (ii) any entity under contract known to boycott energy
companies

Montana HB 356, ineffect 10/1/23

Contracting
Prohibits state governmental entities from entering into contracts
for goods or services (value at $100K or more) with a company
absent written verification that the company does not and will
not engage in firearm entity/firearm trade association boycotts
during the term of the contract

New Hampshire HB
1469, in effect 6/17/22

Anti-Discrimination Committee
Establishes committee to study the need for anti-discrimination
legislation in the state’s financial services industry

North Dakota SB
2291, in effect 3/24/21

ESG Report
Requires state Department of Commerce study on ESG-related
investment policies, state involvement with companies thatconsider ESG factors in their decisions, and the implications of
total divestment from companies that boycott energy orcommodities

Oklahoma HB 2034, in
effect 11/1/22

Anti-Boycott – Listed Entities
Same as Kentucky SB 205 above; applies to all state retirement
systems
Contracting
Same as Kentucky law above

Exceptions / Notes

Exception
Does not apply where the governmental entity
contracts with a sole-source provider or does notreceive bids from a company that is able to provide
the required written verification

On November 20, 2023, an Oklahoma pensioner
filed a lawsuit to block enforcement of HB 2034
alleging HB 2034 is unconstitutional and violates
the First Amendment
Exception
Essentially the same as Kentucky law above,
though applies a clear and convincing as opposed
to a reasonable evidence standard with respect todetermining financial loss, and describes such loss
as a loss in the value of assets under management
as opposed to material financial loss
An initial list of financial companies was released
on 5/3/23 and updated on 8/15/23
Oklahoma Public Employee Retirement System,
which holds over $10 billion in assets, voted to takethe financial exemption to avoid divesting from alisted asset manager

Tennessee SB 2649, in
effect 7/1/22

Contracting
Prohibits State Treasurer from entering into contracts oramendments with a state depository for the state’s primary cash
management banking services where the entity has a policy
prohibiting financing to fossil fuel companies

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Exception
Does not apply where the governmental entity
determines the state depository’s services arenecessary for it to perform its functions and/or
services may not be obtained elsewhere11Measure

Description

Exceptions / Notes

Texas SB 13, in effect
9/1/21Anti-Boycott – Listed Entities
Same as Kentucky and Oklahoma laws above; applies to multiple
state retirement systems and the permanent school fundDivestment Exception
Same as Oklahoma law above

Contracting
Same as Kentucky and Oklahoma laws above

Notes: An initial list of financial companies was
released on 8/24/22, updated on 3/20/23, andmost recently updated again on 11/1/23
The Comptroller published updated FAQ related
to the methodology used in the creation andpublication of the list in March
The Texas Comptroller has sent a letter warningstate pension funds and an entity that manages
money for the public school systems to sever all
relationships with listed companies
A bill to repeal the law was filed, but failed to pass

Contracting
Prohibits state governmental entities from entering into contracts
for goods or services (value at $100K or more) with a company
absent written verification that the company does not and will
not discriminate against a firearms entity or trade association
during the term of the contract

Exception
Does not apply where the governmental entity
contracts with a sole-source provider or does notreceive bids from a company that is able to provide
the required written verification

Texas SB 833, in effect
9/1/23Anti-Discrimination - Scoring
Prohibits state insurers from using an ESG model, score, factor or
standard to charge a rate different than the rate charged toanother business or risk in the same class for a similar hazard

Exception
An insurer does not violate the statute if its actions
are based on an ordinary insurance businesspurpose, including the use of sound actuarial
principles, or financial solvency considerations
reasonably related to the type of risk

Utah SB 97, in effect
5/3/23Contracting
Prohibits public entities from entering into contracts for goods orservices (value at $100K or more) with a company absent written
verification that the company does not and will not engage in,among others, an economic boycott against fossil fuel, timber,mining, agriculture or firearms companies, companies that do
not meet or commit to meet environmental standards (including
standards for eliminating, reducing, offsetting or disclosing GHG
emissions, beyond applicable state and federal law
requirements), or companies that do not facilitate or commit tofacilitate access to abortion or sex characteristic surgicalprocedures, during the term of the contract

Exception
Permits public entities to contract with restrictedcompanies where there is no economicallypracticable alternative, or to comply with federal
law

Utah HB 449, in effect
7/1/23Anti-Boycott – Coordination
Prohibits companies from coordinating to eliminate viableoptions for firearms companies to obtain a product or service

Utah HB 281, in effect
5/2/23Anti-Discrimination - Scoring
Requires state consumer protection division to establish andoperate a system to receive consumer reports regarding acompany’s or financial institution’s use or creation of a social
credit score, and to submit a report to the appropriate stateagency regarding reports indicating that a company or financial
institution has used a social credit score to discriminate against,
advocate for or cause adverse or preferential treatment of apersonTexas SB 19, in effect
9/1/21ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Certain other contracts exempted

12

Measure

Description

Exceptions / Notes

West Virginia SB 262,
in effect 6/10/22

Anti-Boycott – Listed Entities
Authorizes State Treasurer to prepare and maintain a list offinancial companies that have engaged in energy company
boycotts, to exclude listed companies from the selection process
for state banking contracts, to refuse to enter into banking
contracts with listed companies, and to require, as a term ofbanking contracts, an agreement by a financial institution not toengage in energy company boycotts for the duration of thecontract

An initial list of financial companies was releasedon 7/28/22

Wyoming HB 0236, ineffect 7/1/21

Anti-Discrimination
Prohibits financial institutions from discriminating against
firearms businesses or trade associations

Exception
Does not apply where a financial institution opts
not to provide services to firearms businesses forbusiness or financial reasons or pursuant to aregulation or written company policy prohibiting
discrimination against these entities

3. State Measures Promoting the Consideration of ESG Factors in
Investment Strategies
As set out in the table below, five states have laws inforce that require or promote the consideration of ESG
factors by private and public entities. Some require thedevelopment of sustainable investment policies. Others
require reporting on how ESG factors are integrated into

Measureinvestment decision-making, analysis, portfolio
construction and ownership, or cover proxy voting.
Several states and/or state pension funds (notably, theTexas Teacher Retirement System) have also introduced
policy changes in this vein.

Description

Exceptions / Notes

California, SB 54,
in effect 1/1/24

Requires qualifying “venture capital companies” with ties to CA
to annually survey and report specified information relating to
the diversity of the founding team members of businesses inwhich the venture capital companies have invested23

Key questions include how broadly the definitionof “venture capital company” will be applied

Colorado, SB 23-016,
in effect 8/8/23

Requires public employees’ retirement system to provide annual
report on climate change risk assessments, anticipated impact on
investment strategy, use of climate-related reporting and actions
taken to manage climate risk

Laws

Requires certain insurers to participate in a climate risk
disclosure survey
Illinois, PA 101-473, in
effect 1/1/20

Requires state and local government entities managing publicfunds to develop, publish and implement policies outlining how
they consider ESG factors in relation to their overarching goals ofachieving sustainable returns

Does not apply to financial institution time
deposits or processing services

Requires entities to prudently integrate sustainability factors into
investment decision-making, investment analysis, portfolio
construction, due diligence and investment ownership

23

Please see our client memo for additional information.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

13

Measure

Description

Illinois, SB 2152, ineffect 9/1/23

Requires state pension board to publish its guidelines for voting
proxy ballots and a detailed report on its website describing how
the board is considering sustainability factors as defined in thestate’s sustainable investing act (PA 101-473 above)

Illinois, HB 1471,
enacted 7/12/19

Identifies environmental and social considerations andgovernance policies among circumstances that a trustee
managing a trust may consider in making investment decisions

Illinois, SB 653,
enacted 8/6/21

Requires State Treasurer to develop, publish and implement an
investment policy covering the management of all state funds
under its control

Illinois, HB 2782, ineffect 1/1/24

Requires public entity investment managers to disclose adescription of any process through which they integratesustainability factors into investment decision-making, analysis,
portfolio construction, diligence and investment ownership inorder to maximize risk-adjusted financial returns

Maryland HB 740 / SB566, in effect 6/1/22

Requires state retirement and pension board to consider climate
risks in its investment policy and associated with its investment
portfolio across certain sectors and asset classes, to identify
investment opportunities in certain energy sectors, to develop a
process to regularly assess certain impacts of climate risk, and toreport annually on climate risk levels across the portfolio

Exceptions / Notes

Policy must include material, relevant anddecision-useful sustainability factors to beconsidered

Requires fiduciaries to consider the potential systemic risks of the
impact of climate change on the assets of several systems,
including monitoring net-zero aligned investments and climate
solutions to ensure a path to a long-term sustainable portfolio
New Hampshire, SB49, enacted 7/1/21

Allows trustees to engage in investing strategies that align withinterested persons’ social, environmental, or governanceobjectives or other values or beliefs, regardless of investment
performance

Resolutions / Policies / Statements
Illinois State Treasurer
Statement before theHouse Committee onOversight andAccountability, 5/10/23

Describes ESG investing as necessary for responsible investing
and critical for managing and mitigating risk

New Mexico
Permanent Funds
Environmental, Social,and Governance Policy,
approved by the New
Mexico State
Investment Council inAugust 2021

Establishes guidelines for the incorporation of ESG
considerations into state investment office and council state
investment management process

Oregon Investment
Council approval of anamendment to the state
investment policy for
Oregon Public
Employees Retirement
Fund, 9/9/20

Formally integrates ESG factors into fund management policy

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

14

Measure

Description

Texas Teacher
Retirement System ESG
policy, in effect 9/16/21

Formally incorporates ESG statement into investment policy

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Exceptions / Notes

15

4. State Measures Prohibiting Public Investment in Certain
Industries
Seven states have laws or policy initiatives that prohibit investment in ESG-disfavored industries. All target fossil fuelproducers and firearms businesses.

MeasureDescription

Exceptions / Notes

Laws
California SB 185, in
effect 4/8/15

Prohibits boards of the California Public Employees’ Retirement
System (CalPERS) and the California State Teachers’ Retirement
System (CalSTRS) from making new investments in thermal coalcompanies
Requires boards to divest investments in existing thermal coalcompanies by 7/1/17, to report to the state legislature by 1/1/18
on divestment activities, and in conjunction with the California
Environmental Protection Agency to report on the feasibility ofdivesting from fossil fuel investments

Maine HP 65 / LD 99,
in effect 6/16/21

Prohibits State Treasurer from investing in any primecommercial paper or corporate bonds issued by a fossil fuelcompany

Does not preclude de minimis exposure of funds

Requires divestment of fossil fuel companies by state permanent
funds held in trust by employees retirement system to divest
from the fossil fuel industry by 1/1/26, and specifically identifies
the 200 largest public fossil fuel companies as determined bycarbon in their reserves
Requires the public employees retirement system board to (i)post information detailing all holdings in the public market andprivate equity investments on a quarterly basis to the publicly
accessible board website and (ii) annually report on its ESG
investment policy, including a disclosure of commonly available
environmental performance metrics on the environmental effectsof the board’s investments
Resolutions / Policies / Statements
California Public
Employees’ Retirement
System (“CalPERS”)
initiatives

In November 2023, CalPERS announced its 2030 Sustainable
Investment Strategy to accelerate the fund’s goal of reaching netzero by 2050. Commits $100B to climate solutions by 2030,
commits to more selective investments in high-emitting sectors
and commits to developing a process to exit certain securities forcompanies without credible net zero plans

Connecticut State
Treasurer’s Responsible
Gun Policy, adopted andin effect 12/3/19

Prohibits state retirement plans and trust funds investment incivilian firearm manufacturing companies

Massachusetts PRIM
Board proxy voting
guidelines, in effect
3/1/22

Permits state pension funds to vote against directors at
companies targeted by the Climate Action 100+, and vote on acase-by-case basis on directors at companies not included on the
Climate Action 100+ action list, that have failed to align theirbusiness plans with the goals of limiting global warming to 1.5
degrees Celsius, as set forth in the Paris Climate Agreement,
and/or that have failed to establish a plan to achieve net zero
emissions by 2050

Notes flexibility to invest in gun-safe technologies

Requests banks and financial institutions to disclose their gun
policies to the Office of the Treasurer, and requires that office toconsider such policies when contracting for financial services

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

16

Measure

Description

Nevada Treasurer
Announcement, 6/3/22

Announced state divestment from businesses that sell or
manufacture assault-style weapons

New York State
Teachers’ Retirement
System divestment,
12/28/21

Announced end to further investment in 20 oil and gas andthermal coal reserve holdings and divestment of $66 million ofthermal coal holdings

New York State
Pension Fund sets 2040
Net Zero Carbon
Emissions Target

New York State Common Fund adopted a goal to transition its
portfolio to net zero emissions by 2040, including (i) a review ofinvestments in energy sector companies, (ii) an assessment oftransition readiness and climate-related investment risk and (iii)
divestment of companies that fail to meet minimum standards

New York City
Teachers’ Retirement
System initiatives

2015 - divested from thermal coal
2017-2022 - conducted climate risk assessments and divested
from fossil fuel reserve owners and increased investments inclimate solutions
2021 - committed to reach net zero by 2040
2023 - announced four strategies whereby system will achieve net
zero emissions by 2040: (1) disclose emissions and set interim
targets; (2) engage portfolio companies and asset managers to be
net zero-aligned; (3) invest in climate change solutions and (4)divest to reduce risk

New York City
Employees’ Retirement
System initiatives

2015 - divested from thermal coal

Exceptions / Notes

In May 2023, four public employees, who are
future pension beneficiaries, supported by an
Oklahoma anti-union advocacy group, sued the
New York City Teachers’ Retirement System,
Employees’ Retirement System and Board of
Education Retirement System for breaching theirfiduciary duties in the process of divesting fromfossil fuel companies. On August 7, 2023, thepension funds filed a motion to dismiss on the
grounds that the decision will have no impact on
the employees’ retirement benefits, and theemployees therefore lack standing
See discussion of lawsuit above

2017-2022 - conducted climate risk assessments and divested
from fossil fuel reserve owners and increased investments inclimate solutions
2021 - committed to reach net zero by 2040
2023 - announced four strategies whereby system will achieve net
zero emissions by 2040: (1) disclose emissions and set interim
targets; (2) engage portfolio companies and asset managers to be
net zero-aligned; (3) invest in climate change solutions and (4)divest to reduce risk

New York City Boardof Education Retirement
System initiatives

Divested from fossil fuel reserve owners in 2021

Rhode Island State
Pension Initiative, in
effect 1/22/20

Requires state investment commission to divest the public
pension fund from companies that manufacture assault-styleweapons for civilian use or operate private for-profit prisons

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

See discussion of lawsuit above17

5. State Measures Requiring Corporations to Disclose GHG
Emissions or Climate-related Risks to the State
Finally, lawmakers in California and other states24 haveintroduced bills that would require corporations to trackand disclose regularly the GHG emissions they generate
through their business activities or issue climate-related
risk disclosures. California Governor Gavin Newsom
recently signed three bills into law that will require
covered companies to disclose their Scope 1, 2 and 3
greenhouse gas (“GHG”) emissions, their climate-related
risk management processes, and/or details related toselling/purchasing of voluntary carbon offsets.
Senate Bill 253, the Climate Corporate Data
Accountability Act (“SB 253”), requires an estimated5,300 public and private in-scope companies to disclose
the annual GHG emissions from across their operationsand value chains in line with the Greenhouse Gas
Protocol standards and related guidance. Senate Bill 261,
the Climate-related Financial Risk Act (“SB 261”),

applies to a larger number of public and privatecompanies and mandates the filing of an annual climaterelated financial risk report in accordance with theframework recommended by the Task Force for Climaterelated Financial Disclosures (“TCFD”).25
SB 253 and SB 261 have been compared to the SEC’s
proposed rule on the Enhancement and Standardizationof Climate-Related Disclosures for Investors (“SECproposed rule”) but contain important differences.
Assembly Bill 1305 requires covered entities to discloseon their websites details relating to voluntary carbon
offsets marketed, sold purchased, or used to support
carbon reduction or net zero claims made within
California.
For further discussion on these measures, please see ourclient memo.

Conclusion
As regulatory oversight of ESG tightens elsewhere in the world, the U.S. landscape is becoming increasingly
fractured. States are moving in opposite directions, while ESG serves as a political fight at the federal level.
This puts companies and investment managers in the difficult position of navigating business and politics
while seeking to protect their interests and investments. Given the vast number and intricacy of these statemeasures, and the rapidity with which they are being introduced and implemented, companies are wise tomonitor developments in this space closely, and to assess what steps may be prudent, given potential impacts
associated with such measures. such measures.
Visit our ESG Practice Page to stay informed about developments in this area.

24

See e.g. New York’s Senate Bills, S 897, S 5437, S 7704 and S 7705, which like California SB 253 and SB 261, would require disclosures in line with the Greenhouse Gas Protocol and theTask Force on Climate-related Financial Disclosures. See also Minnesota’s SF 2744 which went into effect on July 1, 2023 and requires banking institutions and credit unions withmore than $1 billion in assets to complete a climate risk disclosure survey.

25

Similarly, Minnesota passed a law, SB 2744, requiring banking institutions and credit unions with more than $1 billion in assets to complete a climate risk disclosure survey.

ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

18

For further information regarding this Alert, please contact one of the following authors:
Leah Malone

Emily B. Holland

Courtney Kobren+1-212-455-3560+1-202-636-5987+1-212-455-7026

leah.malone@stblaw.com

emily.holland@stblaw.com

courtney.kobren@stblaw.com

Angela J. Yu+1-212-455-7039
angela.yu@stblaw.com

SimpsonThacherWorldwide

The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who
authored it are rendering legal or other professional advice or opinions on specific facts or matters, nor does the
distribution of this publication to any person constitute the establishment of an attorney-client relationship. Simpson
Thacher & Bartlett LLP assumes no liability in connection with the use of this publication. Please contact your relationshippartner if we can be of assistance regarding these important developments. The names and office locations of all of ourpartners, as well as our recent memoranda, can be obtained from our website, www.simpsonthacher.com.

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