The Arkansas Legislature recently enacted House Bill 1307 concerning the State’s interaction with businesses that make decisions based on Environmental, Social, or Governance (ESG) factors. ESG investing is used to screen investments based on corporate policies and to encourage companies to act responsibly. This follows a recent surge in interest by investors in putting their money where their values are. Increasingly, businesses are aligning their practices to ESG principles, including by screening their customers and business partners based on ESG principles.
In an apparent attempt to deter businesses from making values-based business decisions, the Legislature enacted House Bill 1307, which will be codified as Ark. Code Ann. 25-1-1001 et seq. Among other things, HB1307 directs the State Treasurer to prepare and publish a list of all financial services providers that “discriminate against energy companies or firearms entities or otherwise refuse to deal” based on ESG factors. HB1307 further directs the State Treasurer to divest the state of all direct and indirect holdings in the financial services providers on the list.
Will your bank wind up on the list? It depends. The language of HB1307 is arguably open to multiple interpretations. It’s clear the list will include banks that discriminate against energy companies or firearms entities. But what was intended by the phrase, “or otherwise refuse to deal?” Is the list to include only those who discriminate against “or otherwise refuse to deal” with energy companies or firearms entities? Or will it capture those who refuse to deal with any person or company based on ESG principles?
The list will be created and maintained as determined by the ESG Oversight Committee. Forty-five days before including a financial services provider on the list, the ESG Oversight Committee will send written notice to the financial services provider. The notice must state that the ESG Oversight Committee has determined that the financial services provider has discriminated against energy companies or firearms entities or otherwise refused to deal based on ESG factors; the evidence of discrimination relied upon by the ESG Oversight Committee in making its determination; placement of the provider on the list within 45 days unless, within 30 days following receipt of the notice, the provider demonstrates that it is not discriminating or refusing to deal; and publication of the list will be on the State Treasurer’s website. The Treasurer’s office and ESG Oversight Committee will initially be tasked with interpreting and applying the statute. This interpretation will be subject to challenge in court, ultimately terminating with the Arkansas Supreme Court. Time will tell whether the statute is given a narrow or broad construction.