Under the guise of protecting oil and gas industry jobs, Oklahoma elected officials have signed onto a playbook being run by an out-of-state network of conservative groups who have set their sights on normally staid state treasurer’s offices and pension funds. 

In Oklahoma, 13 financial firms are now on a list of companies banned from doing business with state pension funds or participating in state bond sales. State Treasurer Todd Russ, a Republican who was elected in November, issued the first restricted company list in early May. 

Among the companies listed are the investment firm giant BlackRock, along with big, publicly traded banks like Wells Fargo & Co., Bank of America, JPMorgan Chase & Co. and State Street. But smaller, private investment firms showed up on the list too, leading to speculation that their inclusion was either a mistake or an arbitrary decision by the treasurer’s office. 

Few state lawmakers had much prior knowledge about environmental, social and governance goals set by publicly traded companies. Now, it’s become a key talking point for conservative lawmakers and state officials. It’s also likely to be part of the GOP presidential primaries for the 2024 election. The effort is being driven by a Kansas nonprofit, the State Financial Officers Foundation, which is providing policy support and a letter-writing campaign to decision makers at both the federal and state level. 

The Oklahoma treasurer’s list is already causing confusion and uncertainty for pension fund managers and those in charge of securing financing for large projects. A recent estimate by financial experts at the Oklahoma Public Employees Retirement System said it could cost more than $10 million for the system to divest its holdings from BlackRock. Stillwater officials went with a higher bank loan rate for infrastructure projects after their first pick, Bank of America, showed up on the treasurer’s list. 

Earlier this month, the Commissioners of the Land Office canceled investment contracts with BlackRock and JPMorgan Chase, who combined manage more than $285 million of the state’s $2.5 billion land fund that benefits education. 

The divestment moves are a result of the the Energy Discrimination Elimination Act. The law was supported by the Petroleum Alliance of Oklahoma and modeled on a Texas bill passed in 2021. Rep. Mark McBride, R-Moore, authored the Oklahoma law. It was opposed by the Oklahoma Bankers Association

Oil and Gas Industry Discrimination? 

Oklahoma’s questionnaire asking about fossil fuel policies and environmental goals, sent by Russ’ office to about 150 banks and financial firms in February, was almost a carbon copy of one sent by Texas last year. 

In many ways, the pushback on banks and investment firms with progressive environmental, social and governance policies comes after several decades of shareholder activism. Hedge funds and pension funds hold a plethora of shares, giving their voice a greater say when it comes to the annual shareholder meetings. 

Those shareholder meetings once were fairly boring ways to pick company directors and ask questions of management. Since the 1980s, they have become the main forum for a variety of shareholders’ financial, environmental, governance and social concerns. 

Much of the recent shareholder activism started with large pension funds from states like California, Illinois and New York. Their pension fund overseers, many of whom were political appointees, were open to using the annual meetings of shareholders to push company managers to establish goals and make statements about environmental or societal change. 

Still, some investment fund managers and environmentalists have questioned those tactics, calling the statements and goals greenwashing for public relations purposes that don’t add value to a company’s bottom line or effect any real societal change. 

BlackRock, for example, manages about 60% of the $10.3 billion of investments held by the Oklahoma Public Employees Retirement System. Its response to Oklahoma’s questionnaire on anti-oil and gas investments at times appeared incredulous.  

“BlackRock does not boycott energy companies,” the company wrote in its March 31 response to Russ’ office. “The energy sector in general, and in Oklahoma in particular, is a critical component of our clients’ portfolios.

“As fiduciaries, we advise clients on major structural trends that we believe may impact their portfolios. One such trend is the change in government policies, technology and consumer preferences associated with the transition to a low-carbon economy,” the company wrote.

BlackRock said it had $15 billion in investments in Oklahoma’s public energy companies, most of it on the oil and gas side. The firm alluded to Republican Gov. Kevin Stitt’s all-of-the-above energy policy. 

“BlackRock believes that carbon-intensive companies will continue to play a crucial role in the economy for the foreseeable future, and many of our clients’ investments similarly have an ‘all of the above’ approach to the sector,” the company said. 

Despite that response, Russ, along with Oklahoma State Auditor and Inspector Cindy Byrd, signed a letter to BlackRock last month criticizing the company’s investment policies. The joint letter was signed by 19 other state treasurers or investment officials. 

It asked BlackRock to respond to a list of 57 questions about its intentions to vote on shareholder proposals at public companiesin which BlackRock invests dealing with environmental policies or greenhouse gas-reduction goals. A section of questions asked about shareholder proposals on diversity or racial equity. 

“We are concerned that taxpayers’ best long-term economic interests might have become subordinated to environmental, social, and political interests often divorced from shareholder value — and often pushed through shareholder proposals,” the letter said. 

Byrd is among the overseers of several state investments, including serving on the State Pension Commission, the Commissioners of the Land Office and the State Board of Equalization. 

Conservative treasurer’s network 

The inclusion of Byrd on the letter represents a new front for the State Financial Officers Foundation, a Kansas-based nonprofit whose members include treasurers and financial officers, most of them Republicans.

The nonprofit was founded in 2013 and first became focused on an effort to increase financial literacy and empowerment for women. In recent years, it has raised its profile — and fundraising — by leading a pressure campaign against what it considers ill-advised policies at investment firms and banks doing business with states. 

Nonprofit tax returns show the foundation went from bringing in $234,000 in 2015 to $911,000 in 2021. 

The foundation’s policy support comes from a constellation of conservative groups, including the Heritage Foundation, ALEC, the American Enterprise Institute and former Vice President Mike Pence’s Advancing American Freedom

Both Russ and Byrd attended the State Financial Officers Foundation spring meeting in New Hampshire in April, according to emails obtained from the auditor’s office under the Oklahoma Open Records Act. The keynote speaker was Sean Spicer, a former press secretary for President Donald Trump. 

Oklahoma Ethics Commission filings show the State Financial Officers Foundation paid $3,500 for Russ and his chief of staff, Jordan Harvey, to attend the spring meeting. Byrd and her chief of staff, Megan Winburn, paid for the trip from office funds but plan to get reimbursed by the foundation, said Byrd spokesman Andrew Speno.  

The State Financial Officers Foundation does not list its donors or sponsors, but according to the emails much of its media outreach includes Fox News, Newsmax and other conservative-leaning outlets like The Daily Signal, Brietbart and the Free Beacon. 

“Our corporate sponsors and state government leaders work together to provide the best possible free-market solutions for the states,” the foundation said on its website. “At our national meetings, corporate partners sit and participate side-by-side with our state leaders. SFOF does not discuss or disclose our donors or sponsors.” 

Russ and Byrd signed on to several letters drafted by the foundation and circulated to treasurers and other state financial officials across the country. Most dealt with anti-environment, social, and governance efforts, but Russ and Byrd also signed on to a March letter criticizing AT&T for pulling cable news network One America News from its DirectTV subsidiary. 

In May, Russ and Utah Treasurer Marlo Oaks co-wrote an opinion column published in The Wall Street Journal. The column referred to a recent letter drafted by the State Financial Officers Foundation and signed by 22 state treasurers and financial officers. 

In an email alert to members, Noah Wall, the foundation’s executive vice president for policy and government affairs, praised the placement of the column. Another email contained talking points to share with the media. 

“I want to thank all of you for helping make this possible. This piece will send a powerful message,” Wall wrote in the May 15 email.

Oklahoma fallout 

Despite the rhetoric over so-called woke investing, Oklahoma is a relatively minor player in both the multi-trillion dollar municipal bond market and among state pension funds. Banning major investment firms and banks could affect the rate of return from pension funds or mean fewer bidders to manage state bond sales. That’s magnified in a time when interest rates are rising. The customer — in this case, the state — gets a worse deal if fewer bond underwriters are competing for state business on fees and services. 

For his part, Russ questioned the divestment cost estimates by the Oklahoma Public Employees Retirement System. Russ sits on the 13-member board of trustees of the pension system. 

“Anything that’s proposed as an expense is speculation,” Russ said after the board’s June 1 meeting. “We haven’t done any third-party due diligence or (requests for proposals) to demonstrate that in real dollars.”  

The pension system has until the end of August to exercise an exemption to the law or start the divestment process. A resolution to claim its “fiduciary duty” exemption was recommended by the pension system’s investment committee on June 1 but failed to get a vote at the board of trustees meeting. 

At the Commissioners of the Land Office, a report released this week by the Legislative Office of Fiscal Transparency found the land office’s investments weren’t subject to the Oklahoma Energy Discrimination Elimination Act because the trust is not a pension fund. That report came a week after the five-member Commissioners of the Land Office board voted 3-0 to exclude BlackRock and JPMorgan Chase from its list of investment managers for the upcoming fiscal year. 

Gov. Kevin Stitt, who heads the board for the Commissioners of the Land Office, said cutting those financial firms from the land office’s list of 20 investment managers wouldn’t affect the returns. 

“Most of the funds they invest in, it’ll simply be another investment advisor that’s going to keep the same underlying stocks,” Stitt said after the June 7 meeting. “It’s really not a big issue at all. The returns won’t be affected; other fund managers will just slide right in and we’ll prorate that money to other fund managers.” 

Publicly traded energy companies headquartered in Oklahoma, such as Devon Energy Corp. and Chesapeake Energy Corp., have environmental, social and governance policies of their own. 

“Devon is a private company,” Stitt said. “We’re just simply saying, ‘Do not use our state pension funds to push your agenda.’ If Devon has their own agenda, let them have that agenda.” 

The latest tax filing for Stitt’s family foundation, meanwhile, shows it has small investments with two of the banks on the treasurer’s list of restricted companies, JP Morgan Chase and Bank of America. The governor’s office did not respond to a follow-up question about whether Stitt planned to divest those holdings of his private family foundation. 

Oklahoma Attorney General Gentner Drummond said his office has not been asked for an official opinion on whether the Oklahoma Energy Discrimination Elimination Act applies to counties, cities or school districts. But he said if divestment would cost the local government money, the law has an exemption that can be applied. It’s unclear if the law applies to non-state pension funds like the Oklahoma Municipal Retirement Fund

Anti-ESG fallout in other states

At least 20 states, including Oklahoma, have passed energy discrimination boycott laws or anti-ESG laws in the past couple of years, according to a tracker by the law firm Ropes & Gray. A bill passed earlier this year in Kansas, but was significantly watered down from the version introduced by lawmakers. 

The National Association of State Retirement Administrators does not take a position on ESG investments. However, the group opposes any attempt, either implicitly or explicitly, to direct or influence state and local government retirement system investments that circumvent the trustees’ fiduciary responsibility, according to information on the organization’s website.

In a recent research paper, two economists looked at the implementation of Texas’ anti-energy discrimination law and found the policy distorted financial market outcomes in that state. Shortly after implementation, five large municipal bond underwriting firms stopped providing services in Texas. 

“We find that municipal bond issuers face both higher uncertainty and higher borrowing costs in bond markets as a result of the anti-ESG laws,” the researchers from the University of Pennsylvania and the Federal Reserve Bank of Chicago wrote. 

A report for the Texas comptroller, who implements that state’s version of the law, said ESG policies by public companies have transformed from a focus on corporate governance like executive pay and board diversity to a more dogmatic stance on environmental issues. 

“Put simply, ESG measures should be designed to give investors the option of gauging investment risks and growth opportunities based on companies’ corporate policies, practices and impacts,” the Texas report said. “However, there is no universally agreed-upon definition of what constitutes ESG, and performance measures often can be inconsistent at best.”


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