In 2022, state lawmakers voted to ban Oklahoma government from doing business with financial entities that boycott energy investments via so-called “environmental, social, and governance” (ESG) policies that prioritize political theatrics over sound investment strategy.

The law’s purpose is twofold. It prevents companies from profiting off Oklahoma taxpayers while simultaneously working to reduce economic growth in Oklahoma by depriving the state’s energy producers of access to capital. It is estimated that the oil-and-gas industry comprises roughly 27 percent of the Oklahoma economy.

Second, the law ensures that state pension assets are used to maximize retiree benefits, not to push anti-energy political agendas.

The law has drawn pushback from critics who support ESG policy goals, but a recent filing from the Disney company reinforces the arguments made by ESG critics.

In its latest U.S. Securities and Exchange Commission 10-K filing, Disney acknowledged that the company’s embrace of ESG can result in negative financial consequences and lower profits.

Under a section entitled “Risk Assessment,” Disney officials noted that ESG “matters and any related reporting obligations may impact our businesses.”

“Generally, our revenues and profitability are adversely impacted when our entertainment offerings and products, as well as our methods to make our offerings and products available to consumers, do not achieve sufficient consumer acceptance,” the Disney filing stated. “Further, consumers’ perceptions of our position on matters of public interest, including our efforts to achieve certain of our environmental and social goals, often differ widely and present risks to our reputation and brands.”

Oklahoma state law requires 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 returns.

State entities cannot contract with firms on that list.

State Treasurer Todd Russ strongly defended the law in a recent legislative study. He said the Disney filing demonstrates the financial harm that ESG policies can cause.

“ESG is not based on investment performance,” Russ said. “It’s my responsibility to ensure Oklahomans’ investments will not be used to carry woke institutions’ political agendas. Especially when they are counter to Oklahoma’s industries and Oklahomans values.

“Disney is a great example of how putting ESG policies over investor earnings is bad for business and doesn’t belong in this arena,” Russ concluded.

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.

In August when Russ released an updated list of companies barred from doing business with the state of Oklahoma due to their ESG activism, he noted, “These financial companies are using ESG policies to promote a political, social agenda instead of allowing the free enterprise system to work.”