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Conflict in Kentucky Over ESG Investing
Monday, February 27, 2023

The State of Kentucky, like many other states across the country, is now engaged in significant conflict over the politicized issue of ESG investing.  Last spring, the Kentucky legislature passed a bill ordering that the state treasurer maintain a list of financial firms that "have engaged in energy company boycotts."  And, if those financial firms maintain such a boycott after being warned, then state governmental entities cannot invest in those financial firms nor do business with them.  This law was similar to that passed by other states embracing anti-ESG agendas (e.g., Texas, West Virginia).  

Last fall, there was a significant escalation in the conflict, as the Kentucky Attorney General joined a multi-state effort by various Republican Attorneys-General (fourteen states, led by the Missouri Attorney-General) to investigate national banks "for alleged antitrust and consumer protection law violations related to ESG (environmental, social, governance) investment practices."   Subpoenas and civil investigative demands were issued that appeared to center on the banks' membership in "the United Nations' Net-Zero Banking alliance," through which "banks are required to set carbon emissions reduction targets in their lending and investment portfolios to eliminate carbon emissions by 2050."  Surprisingly, the Kentucky Bankers Association then sued the Kentucky Attorney General to block this investigation, referring to "the amazing and disturbing broad overreach of the CIDs."  That action remains pending.   

This conflict is emblematic of the degree to which ESG investing has become an intensely politicized issue, and involved entities--especially major financial firms and corporations--that typically do not involve themselves with this sort of political conflict.  Indeed, many of these entities apparently planned to avail themselves of various loopholes in the laws (e.g., continuing to take ESG principles into account when investing to avoid violating fiduciary duties), but this quiet compliance with the letter of the law does not appear to satisfy politicians' never-ending quest for headlines.  Perhaps in response to that reality, there have recently been actions taken by business-focused groups and individuals in conservative states, such as Indiana and North Dakota, to prevent this issue from arising in the first instance by lobbying against the passage of such anti-ESG bills.   

Daniel Cameron, the state attorney general, got involved. In October, he issued subpoenas and civil investigative demands. . . . His office announced that it planned to examine “documents relating to the companies’ involvement with the United Nations’ Net-Zero Banking Alliance.” The information requested, the office said, “centers on suspected financial discrimination against companies that do not align with the United Nations’ ‘net-zero’ climate agenda.” In response, the Kentucky Bankers Association sued, calling the attorney general’s 24 demands for information and 20 separate demands for documents an “amazing” overreach. In effect, according to the bankers’ legal filing, the demands were “creating an ongoing state surveillance system.” The bankers further claimed that the attorney general was violating their right to free speech and freedom to associate.

https://www.nytimes.com/2023/02/24/your-money/anti-esg-investing-kentucky.html

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