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Editorial 7 MIN READ

The anti-ESG map, four months on

Texas has a questionnaire out, West Virginia has dropped a BlackRock fund and passed a second statute, and Florida has quietly taken proxy voting back

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. Texas: letters, not a list
  2. West Virginia: out of BlackRock, and into a statute
  3. Florida: proxy voting first, ESG rules later
  4. The rest, briefly
  5. What this means for clients right now
  6. Sources

he anti-ESG statutes we covered four months ago have stopped being theoretical. Texas has sent its first round of verification letters, West Virginia has pulled a BlackRock mandate and passed a second anti-boycott bill, and Florida has taken proxy voting back from its outside managers. None of these moves require a court fight. They operate through procurement, custody, and pension-trustee discretion, which means the operational weight is already landing on the firms that have to comply.

For a lawyer who incorporates for a living, the question is not when the Texas Comptroller will publish the statutory list of banned financial companies. The question is what the letters and the adjacent state actions already do to the advice you give clients about where to bank, where to custody, and how to document a fund's investment policy.

Texas: letters, not a list

Texas SB 13's listing mechanism was on a slow fuse from the start. Chapter 809 of the Government Code directs the Comptroller to "prepare and maintain" a list of financial companies boycotting energy companies, sets no statutory deadline for the first publication, and expressly authorizes the Comptroller to use "publicly available information" plus written verification requests to compile it. The list is the end of a process, not the beginning.

On March 16, 2022, Comptroller Glenn Hegar announced the first concrete procedural step: verification letters went to 19 "major financial companies whose entire operations effectively may be boycotting the fossil fuel industry," asking for clarification of their firmwide policies. Recipients have 60 days to respond. A firm that fails to clarify will be "presumed to be boycotting energy companies" for Chapter 809 purposes. A second, broader round is scheduled to go to more than 100 publicly traded investment companies that appear to run one or more screened funds.

The 19 recipients are not a published list in the statutory sense; they are an investigation roster. The April reading inside the firms is that Texas is pressure-testing the gap between firmwide ESG signals and individual-fund mandates. A firm that has signed Climate Action 100+ or the Net Zero Asset Managers commitment at the enterprise level but runs unscreened index funds will have to explain in writing which commitment binds what, and on what authority. "Ordinary business purpose," the SB 13 safe harbor, is now a drafting exercise with a 60-day clock.

Nothing has been banned yet. Texas state contracts over $100,000 continue to require SB 13 and SB 19 anti-boycott certifications, and those turn on the contracting company's own written representation about its energy and firearm policies. Until the Comptroller's list is published and notice runs, the pension divestment clock has not started for anyone. Counsel responding to Texas RFPs should keep the certification language current; counsel advising asset managers in the 19-letter cohort should assume that everything they write in response is a public record in waiting.

West Virginia: out of BlackRock, and into a statute

West Virginia moved faster than Texas on both fronts. On January 17, 2022, Treasurer Riley Moore announced that the state's Board of Treasury Investments, which manages roughly $8 billion in operating funds, would discontinue its use of a BlackRock investment fund. Stated reasons were BlackRock's net-zero advocacy toward portfolio companies and the firm's Chinese holdings. This was a trustee action, not a legislative one; it required no statute and no list, and closed out a mandate with a letter.

Eight weeks later, the legislature shipped the statute. SB 262, passed on March 12 (the final day of the regular session), authorizes the Treasurer to publish a list of "restricted financial institutions" that have refused, terminated, or limited commercial activity with fossil-fuel companies "without a reasonable business purpose," and conditions state banking contracts on non-inclusion. Governor Jim Justice let it become law without his signature. The anchor is banking contracts rather than pension holdings, and the "reasonable business purpose" clause is closer to a fiduciary discretion carve-out than to the Texas safe harbor.

A financial firm can now lose its West Virginia banking relationship by two independent routes: the Treasurer's discretionary custody decisions (already exercised against BlackRock in January) or the SB 262 list once it is published.

Florida: proxy voting first, ESG rules later

Florida's December 2021 move was narrower than Texas or West Virginia and, in some ways, more interesting. Governor Ron DeSantis directed the State Board of Administration (SBA) to reclaim the state pension fund's proxy voting from outside managers, including BlackRock, State Street, and Vanguard. The directive did not ban investments in those firms' funds; it took the voting stick back. Florida's SBA trustees are DeSantis, CFO Jimmy Patronis, and Attorney General Ashley Moody, and the action reads as a pre-legislative recalibration of who inside the state's $240-billion pension system actually exercises shareholder voice.

Reclaiming proxy votes matters because it breaks the vote-aggregation assumption that made the big three's ESG framework credible in the first place. If enough large public pensions route their proxies away from their outside managers and vote them in-house, the coordination signal that made a BlackRock net-zero letter into a governance event weakens. Florida is the most visible signatory to a model that state pension trustees elsewhere are studying.

What Florida has not yet done, as of April 5, is adopt a formal SBA rule that constrains investment decisions to "pecuniary factors." That step has been discussed at trustee level but not yet docketed. If it arrives, it will look like a state analog to the Department of Labor's 2020 pecuniary-factors rulemaking, which the Biden Administration has proposed to revise at the federal level.

The rest, briefly

Kentucky's SB 205 cleared the Senate on March 29, 2022, after House passage, and is sitting with Governor Andy Beshear. It tracks the Texas SB 13 listing structure, requires the State Treasurer to publish a list of financial companies engaged in energy-company boycotts, and conditions state governmental contracts on non-inclusion. If Beshear signs or lets it become law, Kentucky will be the fourth state with a statutory listing regime. Given Kentucky's mix of coal economics and a Democratic governor, the interesting question is whether SB 205 becomes law via signature, inaction, or veto-override, not whether it becomes law.

Oklahoma's HB 2034, the Energy Discrimination Elimination Act we flagged in December, has moved through committees and is still advancing. The drafting has not changed in material ways from the version we analyzed: a treasurer- maintained list, a 180/360-day divestment window for listed financial companies, and a fiduciary-loss escape. Louisiana and Wyoming have legislative proposals in varying states of development.

The coalition behind the movement has matured. Riley Moore's 15-state letter from November 2021 has become a working caucus of state financial officers that meets periodically and coordinates messaging. The bills are being drafted from the same templates, which means a firm's response to Texas can be reused for Kentucky, Oklahoma, and whoever else picks up the file.

What this means for clients right now

The operative ESG-ban surface in early April 2022 is four overlapping pressure systems. First, contractual certifications (Texas, and by the end of the year probably Kentucky, Oklahoma, and others) that require a company bidding for a state contract over a threshold to represent in writing that it does not boycott energy or firearm companies. Second, treasurer-led custody and banking reassignments (West Virginia's BlackRock action) that can happen without statutory authority. Third, proxy-voting reclamation at state pensions (Florida) that neutralizes the big three's governance leverage without touching their mandates. Fourth, pension divestment regimes that begin to bite only after a published list and a notice period.

For counsel advising a portfolio company that sells to state government, the near-term work is the certification language in the firm's own bid documents. For counsel advising an asset manager with public firmwide ESG commitments, the near-term work is mapping those commitments against the Chapter 809 safe harbor and drafting the "ordinary business purpose" record now, before a verification letter lands. For counsel advising a state-pension trustee, the near-term work is understanding that what Riley Moore did in January requires neither legislation nor public hearings.

The piece of the story that is not yet written is the first constitutional challenge. As of April 5, no asset manager has sued Texas or West Virginia over any of this. The fiduciary-duty argument, which works without a First Amendment theory, is where the first filing is likely to come from. It has not come yet.

Sources

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