An Oklahoma judge recently issued a permanent injunction against a state law that targeted investment banks for divestment purposes. The law, known as the Energy Discrimination Elimination Act, led to the banning of four investment banks from underwriting municipal bonds. Judge Sheila Stinson deemed the law unconstitutional and unconstitutionally vague, citing that it violated Oklahoma’s Constitutional requirement that all pension benefits be used for the benefit of beneficiaries.
In response to the law, the state treasurer placed several financial institutions, including Barclays, Bank of America, JP Morgan Chase, Wells Fargo, BlackRock, State Street Corp., and Climate First Bank, on a list of “boycotters.” This list aimed to identify companies that were deemed to be “boycotting” the fossil fuel industry, leading to financial repercussions for these institutions. Wells Fargo, for example, resigned as a lead underwriter for a $500 million Oklahoma Turnpike Authority revenue bond deal after landing on the list.
Legal Challenges and Financial Impact
The lawsuit against the law was brought by retired state worker Don Keenan, who raised concerns about the costs associated with divesting from the listed firms. The Oklahoma Public Employees Retirement System estimated that commissions, taxes, and fees related to divesting would cost $9.7 million. Additionally, a study released in April found that the law increased municipalities’ borrowing costs by 59 basis points on average.
Efforts to address the law through legislation have faced challenges in the Oklahoma Legislature. Senate Bill 1510, which aimed to apply the law only to state agencies, failed to pass in the House despite initially passing the Senate. The future of the law and its impact on investment banks and financial firms remains uncertain as legal battles continue.
Oklahoma is not alone in its efforts to enact laws targeting investment banks based on environmental, social, and governance criteria. Several states, including Louisiana, have implemented similar laws to penalize financial institutions for their policies related to fossil fuels and firearms. The outcome of these legal battles and the broader implications for the financial industry are likely to be closely watched by other states considering similar measures.