On Tuesday, Arkansas finally set in motion a crucial development in the realm of environmental, social, and governance (ESG) considerations with the enactment of a new law establishing an oversight committee.
The committee’s main mandate is to assess the possibility of banning companies that partake in boycotts against energy and firearms businesses. This move comes amidst a nationwide trend in ESG-related legislation, with various states exploring similar initiatives.
The recently passed Act 411, signed into law by Governor Sarah Huckabee Sanders in March, is now going to come into effect, paving the way for a five-member oversight committee. Comprising representatives from the governor’s office, the House of Representatives, the Senate, the attorney general’s office, and the treasurer’s office, the committee has 90 days to compile and submit its list of companies potentially facing bans.
The committee is empowered to determine whether companies are indeed boycotting or basing their financial decisions on ESG factors. Several criteria have been provided for consideration, including media reports, complaints from energy or firearms companies, and public statements made by the companies themselves. Such information will form the foundation for the committee’s recommendations.
Companies found on the committee’s list will face restrictions in conducting business with both the state and public entities. The legislation mandates that state and public entities must divest their retirement accounts within a year and divest other holdings within 60 days if they involve companies identified by the committee.
While the bills, sponsored by Representative Jeffrey Wardlaw, R‑Hermitage, have garnered support, concerns have been raised about potential costs to the state. As a result, provisions were added, stating that entities need not liquidate if they can demonstrate financial losses would result from such actions.
Arkansas’s this effort aligns with other states’ interest in ESG-related legislation. Alabama Governor Kay Ivey also recently signed a bill banning states from conducting business with companies involved in economic boycotts, with specific exceptions.
Similarly, in Tennessee, Governor Bill Lee signed a bill preventing the state treasurer from investing state funds based on ESG criteria, with projections indicating minimal impact on state or local revenues.
Notably, not all states have embraced ESG bills. North Carolina Governor Roy Cooper vetoed a bill prohibiting ESG policies in state hiring and financial matters, while Arizona Governor Katie Hobbs rejected a bill banning ESG investment practices, highlighting the divergence in approaches across states.
As the Arkansas ESG oversight committee starts its work, companies in the energy and firearms sectors must proactively manage their public image and actions. Engaging in boycotts or displaying weak ESG practices could have far-reaching consequences on their ability to conduct business with the state and its entities.
On the other hand, those companies prioritizing ESG considerations in their decision-making may find themselves in a more favorable position.
Arkansas’s legislation is another milestone in the state’s ESG journey. The challenges that lie ahead include navigating potential legal issues and considering the broader impact on the corporate landscape.