Last April, Kentucky attempted to resist environmental, social and corporate governance (ESG) standards by passing a law targeting banks and investment firms that allegedly “boycott” fossil fuel companies. But then the bankers and state pension managers revolted.

The Bluegrass State’s law is one of a string of actions taken by certain states to resist so-called “woke investing” that they say avoid industries that employ their residents. But Ron Lieber, a columnist for the New York Times, said that an ESG filter is "simply good risk management."

Kentucky’s law ordered the state treasurer to keep a list of financial firms that “have engaged in energy company boycotts.” Those firms then become subjected to warnings that, unheeded, could lead to their not being able to do business with the state. The state treasurer, Allison Ball, then compiled a list of companies that supposedly engage in boycotting energy companies, prompting a response from the County Employees Retirement System (CERS) that argued that the law conflicts with CERS’s fiduciary duties. Lieber noted that the Kentucky bill gives state employees a kind of waiver if they believe the bill violates their duty to act in the best interest of constituents. CERS board chair Betty Pendergrass sent the state treasurer, Allison Ball, a note telling her that she planned to exercise that fiduciary duty.

In October, State Attorney General Daniel Cameron issued subpoenas and civil investigative demands to Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, requesting information “on suspected financial discrimination against companies that do not align with the United Nations’ "'net-zero’ climate agenda.” That prompted the Kentucky Bankers Association to sue, calling his detailed demands an “amazing” overreach. In its complaint for declaration of rights and injunctive relief, the bankers association argues that Cameron exceeded the powers of his office by issuing the subpoenas and violated the First Amendment rights of the association, among other arguments.

Lieber noted that a judge has not yet ruled on the matter.

This issue at hand here is that applying ESG factors may be good investment strategy. “To prudent portfolio stewards of everything from retirement investments to housing, … an ESG filter is simply good risk management, just as looking at international economic or demographic trends can be,” Lieber wrote. He added, "Keeping an eye on how climate change may affect a stock holding ... is part of what anyone should consider when picking stocks."

Other red states are seeing this, too, Lieber wrote. The Indiana Chamber of Commerce recently stated its “strong opposition” to a proposed anti-ESG bill there. A bill in North Dakota that would have created a list of restricted financial institutions determined to boycott energy companies was rejected by 90-3 margin in the state’s House of Representatives, Pensions & Investments reported.

The bill was too vague regarding the definitions of financial institutions and did not provide ample due process, North Dakota Department of Financial Institutions Commissioner Lisa Krause told the state House Industry, Business and Labor Committee House, Pensions & Investments reported.