Summary
The legislative tug of war continues. Despite a presidential veto on March 20, 2023, of a Congressional resolution that repealed a Department of Labor rule allowing retirement plan managers to weigh climate change and other environment, social, and governance (ESG) risk factors in their investment decisions, many states have adopted or introduced similar types of legislation, often referred to as anti-boycott restrictions or bank ban bills, that prohibit state and local governments from investing in or contracting with private sector entities that consider ESG factors.
The Upshot
- House Bill 3 in Florida would prohibit bond issuers from issuing bonds “that will be used to finance a project with an ESG purpose,” including green bonds.
- House Bill 3399 in Texas, currently before the State Affairs Committee, would prevent state and local governments from entering into contracts with firms that do not do business with companies that fail to commit to meeting environmental or diversity, equity, and inclusion (DEI) standards.
- Arizona Governor Katie Hobbs recently vetoed Senate Bill 1096, which would have prevented state and local governments from entering into contracts valued at over $100,000 unless the contract certifies that the company does not “discriminate against a firearm entity or firearm trade association.”
The Bottom Line
With legislation at each stage of the legislative process across many states, banking and financial firms should stay informed on the various proposed and enacted restrictions to state and local government contracts.
On March 20, 2023, President Joe Biden vetoed a Congressional resolution that repealed a Department of Labor rule allowing retirement plan managers to weigh ESG risk factors in their investment decisions. The vetoed bill mirrors legislative proposals adopted or introduced in some states designed to prohibit state and local governments from investing in or contracting with private sector entities that engage in various types of activities that state officials have determined are against the interests of the state and its citizens. Below are a few examples of the states that have adopted or introduced this type of legislation, often referred to as anti-boycott restrictions or bank ban bills, and short descriptions of the legislation.
Florida
House Bill 3 in Florida, introduced in February 2023, would prohibit bond issuers from issuing bonds “that will be used to finance a project with an ESG purpose,” which includes green bonds among others. House Bill 3 also aims at broadly limiting ESG-focused bond transactions by including provisions that would prevent contracts with a rating agency whose ESG score for an issuer would have a “direct, negative impact” on the issuer’s bond ratings.
Texas
In Texas, House Bill 3399, currently before the State Affairs Committee, would prevent state and local governments from entering into contracts with firms that do not do business with companies that fail to commit to meeting environmental or diversity, equity, and inclusion (DEI) standards. The bill would expand Senate Bill 13, passed in 2021, which prohibits state and local governments from investing in or contracting with firms that do not do business with the fossil fuel industry. Texas also passed Senate Bill 19 in 2021, which bans contracts with companies that “discriminate against the firearm or ammunition industries.” As defined in Senate Bill 19, this includes refusing to engage in “the trade of any goods or services with [an entity] based solely on its status as a firearm entity or firearm trade association.”
Arizona
Arizona Governor Katie Hobbs vetoed Senate Bill 1096 Tuesday, March 28, 2023, which would have prevented state and local governments from entering into a contract with a value of $100,000 or more with a company unless the contract “includes a writer certification that the company does not currently, and agrees for the duration of the contract that it will not, discriminate against a firearm entity or firearm trade association.” Senate Bill 1096 would have also prevented a public entity from “[adopting] a procurement, an investment or any other policy that has the effect of inducing” discrimination against the firearm industry. In the bill, to “discriminate” includes refraining from continuing an existing business relationship with an entity “based solely on its status as a firearm entity or firearm trade association.”
Utah
On March 14, 2023, Utah Governor Spencer Cox signed Senate Bill 97 into law, prohibiting a public entity from entering into a contract with a company that engages in certain “boycott actions.” The “boycott actions” include refusing to deal, terminating business activities, or limiting commercial relations with companies that (i) engage in fossil-fuel-based energy, (ii) support the sale or use of firearms, or (iii) do not commit to meeting environmental standards. While Senate Bill 97 appears to follow the 2021 Texas laws described above, Utah’s legislation also includes prohibiting a public entity from entering into a contract with a company that facilitates access to abortion or sex-characteristic surgical procedures.
Oklahoma
In Oklahoma, House Bill 2218 would prohibit state and local governments from entering into a contract with a company for the purchase of goods or services unless the contract contains a written verification from the company that it “does not have a practice, policy, guidance, or directive that discriminates” against the firearm industry. In the Oklahoma bill, to “discriminate” means to refuse to do business or refrain from continuing an existing relationship with an entity “based solely on its status as a firearm entity or firearm trade association.” The bill cleared the Oklahoma House on Wednesday, March 22, 2023, and was sent to the Senate.
Some States Have Shown Support for ESG-Focused Investments and Contracts
Other states, including New York, Connecticut, Vermont, California, and Colorado, have passed or introduced legislation prohibiting or restricting investment in companies or businesses that promote or support the firearm or fossil fuel industries.
Connecticut
Connecticut’s State Treasurer introduced the Responsible Gun Policy in 2019, which provides a framework for factoring in gun policy in financial decisions related to state pension fund investment and state contracts for banking and financial services.
New York
Committees in both the New York Senate and Assembly are evaluating Senate Bill 899 and Assembly Bill A1101, respectively, that would require the New York state teachers’ retirement system to divest from any investments in fossil fuel companies.
Vermont
Lawmakers in Vermont are currently considering Senate Bill 251, which would prohibit the Vermont Pension Investment Commission from investing in the largest fossil fuel reserve owners and calls for the divestment of the current assets in said owners by July 1, 2025.
California
Lawmakers in California are considering Senate Bill 637, which would prohibit a state agency from entering into a contract or depositing state funds with or receiving a loan from a financial institution that invests in or makes loans to a company that manufactures firearms or ammunition. A state agency that is a party to a contract prohibited by the bill would be authorized to remain a party to that contract until the contract expires.
Colorado
Taking a different approach, Colorado legislators passed the Buy Clean Colorado legislation in 2021, which requires state officials to establish policies that include “the maximum acceptable global warming potential” for specific categories of construction materials used in certain public projects, including buildings, roads, highways, and bridge projects. Contractors that are awarded contracts in these projects are required to obtain authorization for certain materials proposed to be used in the public project.
Attention Should Be Paid to Various Restrictions
With legislation at each stage of the legislative process across many states, banking and financial firms should stay informed on the various proposed and enacted restrictions to state and local government contracts.
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