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Over the past two years, we’ve been covering the state legislatures and executive officials taking aim at environmental, social and governance (ESG) investing and ramping up the pressure on companies that incorporate ESG factors into business decisions. Financial services companies have been watching carefully to see what’s next in the state pushback to ESG. And there’s been plenty to see this spring – state agencies have continued to be active in enforcing their laws against financial services companies while attorneys general challenge federal laws supportive of ESG efforts, with varying degrees of success.

No states have had more vigorous enforcement than Texas and West Virginia. In the Lone Star State, the Texas Permanent School Fund pulled $8.5 billion in assets from BlackRock, citing the 2021 state law that barred business between state agencies and financial firms determined to be boycotting energy companies. Not to be outdone, West Virginia added several more large banks to a list of institutions barred from engaging in certain state business because of their policies on energy finance. The list began in 2022 and contains many major financial institutions added by the state’s treasurer.

Not only have states been enforcing their own anti-ESG legislation, but they also have pursued challenges to federal efforts to encourage ESG. The Fifth Circuit recently dismissed a challenge by the attorney generals of Texas, Louisiana, Utah, and West Virginia to a 2022 Securities and Exchange Commission rule altering proxy voting requirements to make it easier for investors to identify ESG issues on corporate ballots. In a unanimous decision, the Fifth Circuit held that the states could not show a risk of harm and so lacked standing to challenge the rule. While this particular battle may not have direct relevance for many financial services companies, the willingness of states to pursue federal litigation on this issue demonstrates the intensity of their opposition to ESG policies.

ESG issues may remain in flux, but one thing remains clear: Financial institutions must remain diligent to ensure their policies and practices comply with diverse, and often clashing, requirements imposed by legislatures and regulators at both the federal and state levels. The controversy over ESG does not look to be going away anytime soon.