Oklahoma lawmakers are considering tweaks to a controversial law that punishes financial firms perceived to discriminate against the fossil-fuel industry.
In a three-hour hearing Oct. 11, state lawmakers grilled Oklahoma Treasurer Todd Russ over the list of financial companies that his office prohibited from doing business with state governmental entities for allegedly boycotting oil and gas companies.
The blacklist, which was winnowed down to six firms from 13, was created to comply with Oklahoma's Energy Discrimination Act of 2022, a law that punishes firms for factoring environmental, social and governance issues into their investment decision-making.
The law requires Oklahoma public pensions funds to terminate contracts with the blacklisted firms.
"There is confusion in this bill," state Sen. David Rader said, referring to the 2022 Oklahoma law. "We have pension managers and their boards not agreeing with the treasurer. We have the treasurer not agreeing with the pension managers and the boards."
Rader added that Russ is "trying to follow the law as best that he can," but that there were questions around due diligence and enforcement that needed to be clarified.
In August, the board of the $11.1 billion Oklahoma Public Employees Retirement System, Oklahoma City, voted to take a fiduciary exemption permitted under the law that would allow it to ignore the divestment mandate if it was inconsistent with its fiduciary duty. The board voted in favor of the exemption 9-1, with Russ — who serves on the board — casting the only "no" vote.
During the hearing, Russ pushed for changes to the legislation that would clarify or walk back the fiduciary exemption.
"If the bill is important to the state of Oklahoma, it's got to be clear enough that it's defensible. Otherwise, we won't change one penny of our position financially in the state," Russ said.
Russ criticized the pension funds for wanting to claim what he described as a "blanket fiduciary exemption" when the law requires them to make a "good-faith effort" to divest from the blacklisted firms.
When Russ asked pension fund officials to elaborate on the reasons for the exemptions, the responses were "very broad and random," he said.
"I brought them back to the statute where it says that those exemptions have to be based on clear and convincing evidence," he said.
Russ also challenged the $10 million that OPERS estimated it would cost the pension fund to terminate its contracts with BlackRock and State Street Global Advisors, which are two of the blacklisted firms.
Russ claimed that requests for proposals yielded better pricing over BlackRock and that the estimates were not "clear and convincing."
"There's a real hard conversation going on about what is reasonable and how do we carry out the letter of the law and be reasonable without assuming that means there will be zero cost involved," he told the lawmakers.
Russ also reviewed and stood by the process by which his office identified the firms said to be unfriendly to oil and gas companies.
While all the blacklisted firms said they invest heavily in oil and gas companies, in some cases investing billions of dollars, the percentage of their total holdings was only about 2%, Russ said.
"You can see how they're trying to walk away from these holdings," he said.
"Don't tell me, show me," he said he'd tell asset managers on the blacklist. "What you're telling me is very different from what your history and your public statements are actually saying."
When prompted, Russ told lawmakers that one way asset managers could get off the blacklist is to change their rhetoric.
"A huge place to start is quit telling the world that oil and gas industry is our problem and we have to shut it down," he said.