Kentucky Republicans mull expanding ESG-related investment disclosure

In an attempt to further sever the state’s financial ties to companies that have divested from the fossil fuel industry, Kentucky lawmakers are considering new anti-ESG investment regulations.

Attorney General David Cameron reiterated his support for expanding disclosure rules for environmental, social and governance investments by large banks and corporations and giving the state broader powers to stop doing business with companies that do not do business with fossil fuel companies make.

“Kentucky is an energy state,” he said in a statement. “That’s why I defend Kentucky from an ESG movement that would destroy the Commonwealth’s competitive advantage and cripple our economy.”

In 2021, the Kentucky General Assembly passed legislation allowing state agencies to stop doing business with banks, securities firms, and other financial services firms that have anti-fossil fuel policies. Supporters of the law said the law prevents companies from taking actions that threaten returns on a variety of publicly managed financial portfolios. Many states have enacted laws prohibiting banks from trading municipal bonds if the firms oppose firearms and the fossil fuel industry.

The law requires the state treasurer to maintain a list of participating companies that do not do business with fossil fuel companies and allows the state to sever ties with any listed company with which it does business worth more than $1 a year million US dollars.

“Big investment firms are working together to force fossil fuel companies to cannibalize their existing businesses and divert time and attention from increasing shareholder returns,” the bill reads.

Discussions to expand disclosure requirements come amid an ongoing dispute between Cameron and major investment firms, which is being fought in a civil court in Franklin County.

In October, Cameron requested additional disclosures about ESG-related decisions and investments from Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo, with the banks filing a lawsuit to have the lawsuit dropped.

“These institutions view climate risk as a financial risk and seek to protect assets,” the lawsuit continues. “Some states have strongly disagreed and have drafted legislation to ban such banks from administering state pension funds or entering into state contracts, despite their financial credentials, if they are believed to have anti-fossil fuel policies. Kentucky has such a law.”

A countersuit filed by the banks last month said Cameron’s decision to issue subpoenas on six of the country’s largest financial institutions was an attempt to “punish banks and investment houses that restrict investments in fossil fuel companies.” The Kentucky Bankers Association also challenged Cameron’s authority to require detailed information from the big six banks.

Kentucky’s ESG law allows ESG-conscious companies deemed profitable to continue to work with the state.

“Climate change is a particularly relevant and active part of the investment strategy for banks and homebuilders,” said the Institute for Energy Economics and Financial Analysis, a policy institute based in neighboring Ohio, in a report covering evolving regulations in Kentucky . “ESG rules in general are generally accepted guidelines used to make decisions.”

Big companies that are decoupling investment from the fossil fuel industry are prudently reassessing their investments, the IEEFA report says, betting on a changing and dynamic energy economy where demand for gas and oil is falling.

“Most of the world’s major companies are taking steps to defend themselves against climate risks,” it said. “Those responsible for economic development in the state support a policy that is diametrically opposed to such a view.”

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