A state law that prohibits Oklahoma government entities from using investment firms that boycott energy companies is having a small but positive impact on Oklahoma’s economy, lawmakers were told at a legislative study.

“It is having an effect,” said Corporation Commissioner Kim David, who supported the law when she was a state senator. “It’s having a positive effect for Oklahoma.”

She said global investment companies continue to stick to their “Environmental Social Governance” (ESG) policies, but that “the banking community as a whole” is starting to become more welcoming to oil-and-gas companies. The rising price of oil and rising interest rates are also playing a role in that trend, she said.

House Bill 2034, which created the “Energy Discrimination Elimination Act of 2022,” required the office of the state treasurer to conduct a review of investment firms to identify those that boycott investments in oil-and-gas companies regardless of the impact on investment returns.

State entities cannot contract with firms on that list.

The purpose of the law is two-fold. First, it prevents firms from profiting off Oklahoma taxpayers while simultaneously working to reduce economic growth in Oklahoma. Second, it ensures that state pension assets are used to maximize retiree benefits, not push anti-energy political agendas.

A number of studies have shown that ESG investing policies have worse rates of return than what occurs when companies focus on growth potential. For example, a study by UCLA and New York University found that over five years ESG funds underperformed the broader market. Additionally, in comparison to other investment plans, ESG investors generally end up paying higher costs for worse performance.

“They will go out of their way to invest in renewables, even if it is at the expense of their clients,” David said.

When HB 2034 was being debated, David said there were an estimated 1,192 institutions that held $14 trillion in assets worldwide that were divesting from fossil fuels.

She noted oil and gas account for roughly 27% of the Oklahoma economy.

State Treasurer Todd Russ said the law has caused some major financial firms to change their rhetoric when seeking contracts from Oklahoma government entities, but that rhetoric is often undercut by those firms’ actions.

“To all of these financial people that come to see me, my statement became, ‘Don’t tell me. Show me. Because when I go look at your website, what you’re telling me is very different from what your history and from what your public statements—publicly facing statements—are actually saying,’” Russ said. “And they couldn’t argue that. It was really like they just kind of got caught red-handed.”

For example, he said officials with Blackrock, one of the world’s largest financial entities, have changed their public rhetoric, but the company’s website still touts its commitment to ESG.

And, in the case of Blackrock, he noted the firm manages assets for China, which is among the largest investors in new coal-fired power plants in the world with around 180 new projects currently in the pipeline, even as Blackrock largely boycotts U.S. coal production.

“If we’re really about the carbon footprint and the environmental quality of the ozone layer, why would Blackrock be managing the sovereign wealth fund of the largest country in the world developing the one thing that they’re putting everybody else out of business on and making that a huge disadvantage for the rest of the world?” Russ said.

However, lawmakers voiced concern that some provisions of the law remain too vague and suggested it should be revised.

“Here are some words that we’ve heard here,” said state Sen. Dave Rader, R-Tulsa. “‘Reasonable.’ ‘Disagree.’ ‘Clear and convincing.’ ‘Varying opinions.’ This is what this bill is and that’s the reason that we’re here today because of all those things.”

He said greater clarity on enforcement and interpretation of the law is needed.

State Sen. Chuck Hall, R-Perry, also worried that HB 2034 limited financing options for Oklahoma towns and county governments.

Russ said there are some administrative expenses involved in changing financial-service providers, but he also questioned the multi-million impact claimed by some entities wanting to be exempted from HB 2034, noting requests for proposal (RFPs) handled by his office showed some entities could achieve significant savings.

“We have some RFPs we have sent out,” Russ said. “We actually got back better pricing over Blackrock—$200,000 better.”

Several officials at the study noted the environmental goals touted by ESG proponents have little basis in reality.

“You could also argue some of these investments in renewables aren’t paying off very well,” said state Sen. John Haste, R-Broken Arrow. “I mean, Ford just announced recently billions of dollars in losses related to their electric vehicles.”

“On the utility side, we can’t even begin to have a reliable grid if it’s 100% renewables,” David said, “not anytime in the near future.”

At some conferences, David said she has encountered officials from the U.S. coasts who questioned why people would invest in oil and gas production, arguing the industry will be gone within a decade.

“Oil and gas will not be gone in 10 years,” David said. “Even if you wanted them to be gone in 10 years, it would only be if you were willing to let the lights be turned off. So, if you’re willing to not have electricity, heating and air, then you could probably (have) oil and gas be gone in 10 years.”