Energy

Oklahoma state treasurer: ESG ruling a ‘resounding validation’

January 23, 2025

Ray Carter

Oklahoma State Treasurer Todd Russ says a U.S. district judge’s ruling, which concluded that “environmental, social, and governance” (ESG) investing violates the fiduciary duty of pension plan managers, is a “resounding validation” of Oklahoma law.

“The Legislature saw the writing on the wall—this breach of duty—and took action,” Russ said. “I picked up the mantle and made it clear: Oklahoma’s tax dollars and pension funds will not support companies undermining their fiduciary responsibilities. This court decision confirms what we’ve said all along—it’s dangerous, it’s a breach, and it’s exactly what we’ve been fighting against.”

In 2022, Oklahoma lawmakers passed the “Energy Discrimination Elimination Act” (EDEA), which requires the office of the state treasurer to identify firms that boycott investments in oil-and-gas companies due to those firms’ embrace of ESG policies.

State entities, including state pension funds, cannot contract with firms on that list.

Oklahoma legislators passed the law because ESG firms often seek to deprive oil-and-gas companies of access to capital and those firms are the foundation of the state economy. In addition, lawmakers noted that ESG policies produce lower investment returns for workers depending on state retirement systems.

That state law is currently the target of a legal challenge that is winding its way through the court system.

ESG investing’s downside for retirees was front and center in a recent federal court case, Spence v. American Airlines.

The complaint in that case, filed by pilot Bryan P. Spence, argued that American Airlines had violated its fiduciary duty to company employees and retirees under the federal Employee Retirement Income Security Act (ERISA) by investing millions of dollars of company employees’ retirement savings with investment managers (BlackRock) and investment funds that pursued “leftist political agendas” through ESG strategies.

In a Jan. 10 order, U.S. District Judge Reed O’Connor concluded that “the facts compellingly demonstrated that Defendants breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence management of the plan.”

Russ noted the court found that

•  American Airlines’ Employee Benefit Committee (EBC) allowed ESG considerations—particularly BlackRock’s ESG-driven proxy voting and activism—to influence decisions about the 401(k) plan;

• the focus on ESG goals came at the expense of maximizing financial returns for the plan's participants, violating the fiduciary duty of loyalty; and

• the court stated that considering ESG factors improperly shifted the focus from financial performance to socio-political outcomes, which is not permissible under fiduciary law.

“As treasurer, my job is to ensure our funds are managed responsibly and with one goal in mind—ethically delivering returns for Oklahomans,” Russ said. “This ruling reinforces what I’ve said from the start: ESG activism has no place in managing state funds. It’s short-sighted, it’s reckless, and it’s a violation of trust.”