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In just a couple of years, “ESG” (environmental, social and governance) has gone from an obscure acronym to a term regularly bandied about in the news, as insurers and financial institutions face legal scrutiny into their investing practices.

A little more than a year ago, we addressed the trend of laws that divest state assets from fossil fuels and firearms companies, or, in contrast, prohibit state assets from being managed by firms that engage in divestments. More states have enacted similar rules in the past 12 months, and during that same timespan, a significant number of states passed legislation concerning ESG criteria. As the laws enter the enforcement stage, insurers and financial industries are now being investigated by states. In this article, we’ll provide a high-level recap of important legislation and enforcement actions.

State ESG Legislation

As of July 1, 2023, nearly half of the states have enacted some rule addressing ESG criteria or the investment of state assets in fossil fuels and firearms companies. These can be grouped into four categories:

  1. Divestment requirements – divesting state assets from certain industries
  2. Anti-boycott restrictions – ending business with asset managers that engage in such boycotts
  3. ESG mandates – requiring states to invest their assets in a way that advances ESG factors
  4. Anti-ESG regulations – limiting ESG criteria when investing state funds

A total of eight states now have anti-boycott legislation. Texas, Oklahoma, West Virginia, Kentucky, and Tennessee prohibit managers of state assets from divesting from fossil fuels, while Wyoming did the same for the firearms industry. Alabama and Utah each passed a more comprehensive law that requires any company contracting with the state to certify that it does not engage in a boycott of (a) fossil fuel, timber, mining, agriculture, or firearms sectors; (b) companies that fail to meet environmental standards; or (c) companies that fail to facilitate access to abortion or gender transition. On the other side, Maine and New York now require divestment of state funds from fossil fuels, while Connecticut, Rhode Island, and Nevada have divested their funds from firearms manufacturers.

Our previous article predicted that the best path for financial institutions through the regulatory jungle would be to avoid boycotts of these industries. That approach, we theorized, could satisfy both states directing their assets away from any institution engaging in boycotts without running afoul of states that were merely seeking to remove their assets from certain industries.

Walking the tightrope of compliance looks more difficult for newly passed laws on the related issue of ESG investing. Maryland now expressly requires that ESG criteria be considered in its investments. Multiple states have taken the opposite approach, instead limiting or prohibiting the consideration of ESG factors in the investment of state funds. Florida is the biggest name on that list, while Alabama, Arkansas, Indiana, Kansas, Kentucky, Idaho, Montana, New Hampshire, North Dakota, and Utah have done the same.

The stringency of these anti-ESG laws varies on multiple issues. One group of laws bans any consideration of ESG whatsoever, while others allow ESG criteria to be considered so long as it does not reduce rates of return. Some states make exceptions to the ESG prohibition for investments in private markets (i.e., venture capital and private equity). And there are different degrees of discretion given to the officials charged with enforcement – in some states, the responsible officer may leave existing contracts undisturbed despite the asset manager’s use of ESG if contract cancelation would harm the fund’s bottom line. These are just a few of the details that insurers, banks, and other financial institutions ought to familiarize themselves with to comply with these new laws.

State Enforcement Actions

The fallout from these new laws has come quickly, at least on the states taking aim at ESG investing. In May 2023, 23 Republican state attorneys general (AGs) sent a warning letter to a group of larger insurers that were members of the Net-Zero Insurance Alliance (NZIA), a United Nations-led group seeking to further climate change goals. In that letter, the AGs expressed “serious concern” that antitrust laws would be violated if the insurers used their market influence to pressure clients into adopting zero-carbon emissions practices. The AGs requested written responses and production of documents on a number of topics by June 15, 2023. In recent months, a number of insurers have exited the NZIA, with some expressing concerns about political and regulatory scrutiny.

In March 2023, 21 Republican AGs sent a similar letter to more than 50 of the largest asset managers in the U.S. This letter also cited antitrust concerns stemming from coordinated ESG investing, as well as claiming the potential for breaches of fiduciary duties to clients.

Finally, states have begun withdrawing money from asset managers over ESG use. Perhaps the biggest move came in December 2022, when Florida announced that it was removing $2 billion from BlackRock management due to the firm’s stance on ESG. In May 2023, the comptroller of Texas announced a list of 11 companies found to boycott fossil fuels and thus ineligible to contract with Texas public investment funds.

Continued scrutiny from Republican-led states appears likely. Earlier this year, 18 governors – led by Ron DeSantis of Florida – announced an “alliance” to push back against the “ESG movement” at the state level. The announcement pledged state efforts to block ESG in bond issuances and state asset investments, as well as to pass regulations restricting the financial sector regardless of whether state assets are involved.

Federal Level

Finally, a brief word about ESG at the federal level. In November 2022, the Department of Labor finalized rules enabling ERISA fiduciaries to use ESG criteria and to engage in proxy voting on ESG bases. Twenty-five Republican AGs sued to block those rules in a lawsuit currently pending in the Northern District of Texas. Earlier, in 2022, the SEC had issued proposed rules to require climate impact disclosures and ESG reporting forms.

ESG has also found its way into the 2024 presidential election conversation. At least two Republican candidates, Florida Gov. Ron DeSantis and investor Vivek Ramaswamy, have repeatedly taken aim at ESG in their campaign speeches. If a Republican candidate prevails in the 2024 election, insurers and financial industries could see federal efforts to limit or prohibit ESG investing and industry boycotts.


The legal landscape of ESG is changing rapidly, and there is little reason to expect the issue to fade anytime soon. Insurers and financial institutions must ensure that their policies and practices are staying in line with applicable state and federal requirements, and that they are prepared to respond to the changing regulatory environment.