Dive Brief:
- Wyoming adopted a regulation this week that will require state investment managers to disclose to customers when they incorporate social criteria into the investment of client funds.
- Secretary of State Chuck Gray said the rule was adopted after review of public comments because he found “ESG investment strategies are inconsistent with the default fiduciary duty” to customers because asset managers that used ESG strategies “do not focus on maximizing investment returns.”
- The law is less restrictive than some other anti-ESG bills in states like Texas and Oklahoma, which ban companies from working with the states due to their stances on oil and gas or firearms.
Dive Insight:
The update to Wyoming securities law was proposed in August, and Gray’s office said public comments expressed support for increased transparency and worries about the underperformance of ESG investments.
Gray said he signed off on the law due to ongoing concerns about the potential negative impacts of ESG decisions on the state’s coal, natural gas and agricultural sectors. He said given the increasing acceptance of ESG principles, the state must take an active role to protect consumers from “woke ESG strategies.”
“I remain concerned and troubled by the negative impact ESG investing has on the people of Wyoming due to its malicious targeting of Wyoming’s core industries and the very real potential that ESG investing will harm those whose hard-earned money is being invested through investment strategies which do not consider the highest financial return,” Gray said in a statement.
Public commenters opposed to the rule said it was either an intrusion into private investment decisions, unnecessary and duplicative or excessively burdensome. Additionally, commenters said the rule was preempted by securities regulations in the National Securities Markets Improvement Act and the Employee Retirement Income Security Act of 1974.
Gray objected to both claims, saying there is no clause in NSMIA preventing states from requiring disclosure for a social objective and ERISA has an explicit carveout for state regulation related to insurance, banking or securities.
Across the country, anti-ESG laws promulgated this year, with at least 25 anti-ESG bills passed in 12 states with Republican-led legislatures. However, Dave Curran, co-chair of law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP’s sustainability and ESG advisory practice, told ESG Dive in a previous interview there has been little substantial enforcement as part of the increased spate of laws.
“There have been absolutely some changes, and the messaging has affected how companies interact with [the ESG] ecosystem,” Curran said. “But for the most part, companies are forging ahead, doing exactly what they were doing prior to the political upheaval in this country.”
