Earlier this week, a state court judge in Oklahoma issued a temporary restraining order that blocks--for now--enforcement of an Oklahoma law that deprives companies deemed to boycott the fossil fuel industry of the ability to conduct business with public entities in Oklahoma. In this particular lawsuit, a beneficiary of the retirement fund for public employees sued to enjoin enforcement of the law, as the cost to the Oklahoma pension fund of switching the financial services companies that manage their money (in order to comply with the law) was estimated to cost millions of dollars, to the detriment of retirees.

While this ruling is undoubtedly significant, the reasoning embraced by the court may limit its ultimate impact. The state court granted the temporary restraining order on two grounds: (1) that the law was unconstitutionally vague, and (2) that it violated specific provisions of the Oklahoma constitution concerning the management of public pension funds (e.g., that the funds are for “the exclusive purpose” of supporting retirees and “shall not be encumbered for or diverted to any other purposes”). Both of these rationales are specific to Oklahoma--whether the language of the statute or of the state constitution--and may lack broader resonance. For example, a more well-crafted law, and a less stringent state constitution, could have led to a different result. (Notably, the court rejected the First Amendment argument propounded by the petitioner, which might have had broader implications.)

Regardless, this decision illustrates the competing pressures on organizations, and state pension funds in particular, as they seek to navigate both the complex array of pro- and anti-ESG legislation and regulation and their fiduciary duties or similar obligations. Specifically, lawsuits and enforcement actions have been threatened or filed to oppose the use of ESG considerations when making investments as an alleged breach of fiduciary duty; on the other hand, many organizations may believe that the use of ESG considerations when investing is in accordance with their fiduciary duty--or at least, as here, that changing investment managers would impose unreasonable and unjustified costs. It is critical to monitor developments in this rapidly-evolving area of the law, in order to assess the implications and provide guidance for organizations traversing this complicated terrain.