Arkansas bill targets companies that use ESG as a political tool

Arkansas lawmakers are pitching a bill that would ban public entities from using financial services or investment firms that use environmental, social and governance factors in a "discriminatory manner."

Senate Bill 41 would require the state treasurer and public entities to divest from financial companies that discriminate "without a reasonable business purpose against certain businesses involved in the energy, fossil fuel, firearms, or ammunition industries or investments based on the use of environmental, social justice, or other governance-related factors."

Sen. Ricky Hill, R-Cabot, is the bill’s lead sponsor, co-sponsored by six senators and 15 representatives.

"The good news is that we haven’t seen anything on this front yet from Arkansas-based businesses," Hill said in an email to The Center Square. "However, I am aware that in early 2022 the former treasurer took action to divest state funds from accounts managed by BlackRock. I support that action, as it is consistent with my proposed law. That law will ensure that other financial service providers who maintain such discriminatory policies won’t be handling government money from Arkansas."

The bill would require the state treasurer to send a written notice to companies accused of using ESG to discriminate 45 days before the company appears on a list. The company would be removed from the list if it can prove that it does not engage in discriminatory practices, according to the bill.

Hill said he doesn't expect that public entities would not comply with the bill if it passes.

"If it is, I expect the General Assembly will bring that entity before the proper committee for a discussion about the failure to comply,' Hill said. "Legal action to compel compliance with the law is always a possibility, but I don’t think it will ever come to that."

The Senate Insurance and Commerce Committee must consider the bill before it goes to the full Senate.

Hill is also the lead sponsor of a bill filed Tuesday that would prohibit companies from making contracts with companies that boycott the fossil fuel, energy, firearms and ammunition industries. The ban does not include contracts under $1,000.

Senate Bill 62 is assigned to the Senate's State Agencies and Governmental Affairs Committee.

Several states are focusing on ESG, saying it could increase borrowing costs for states that don't comply with ESG mandates.

On Friday, Arkansas Attorney General Tim Griffin joined other attorneys general in a letter to Institutional Shareholder Services and the San Francisco firm Glass, Lewis and Company questioning what appears to be the company's penalization of entities that don't agree with climate change tenets. Griffin said in a Facebook video that the "progressive agenda may be at odds with running a business."

The letter asks for a response to questions about the companies' climate change position by Jan. 31.

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