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More than¬†160 legislative proposals have been introduced in more than 37 states¬†across the U.S. that would¬†restrict institutional investors, financial institutions and companies from considering all material financial risks in decision-making. The proposals range¬†from policies that would prohibit pension funds from considering sustainability factors to policies that would prohibit contracts with companies who have so called ‚Äúboycotted‚ÄĚ fossil fuel companies.¬†There is also a growing effort to prohibit insurance companies from considering climate risk in their underwriting decisions despite the clear risk-management responsibility of the industry.¬†Although many of these restrictive efforts have fallen flat in state legislatures, in part due to private sector and even conservative pushback, at least 22 laws to this effect have now been passed in 14 states including new¬†restrictions that ban states and financial institutions from investing in strategies that consider material financial factors for any purpose other than maximized investment returns.¬†¬†


The good news is many of these proposals have failed amid concerns over the hundreds of millions of dollars in additional taxpayer costs such policies would result in, as well as the growing wariness over government interfering with businesses’ freedom to invest responsibly. Restrictive bills in Colorado, Georgia, Iowa, Maine, Mississippi, Missouri, Nevada, South Dakota, Tennessee, Virginia, and Wyoming have all failed to receive passing votes by their respective state legislatures. 


There is other positive momentum in states, such as in Illinois and Oregon, where legislatures have passed policies to explicitly protect the right to consider sustainability and other material financial factors. And California passed a first-in-the-nation law that would give investors, consumers, employees and other stakeholders far more insight into companies’ efforts to manage climate-related financial risks. The U.S. Securities and Exchange Commission is considering a similar proposal, responding to investors and consumers alike who have been making the case for improved transparency for decades.  According to a survey, 85% of Americans said companies should disclose more about the impact of their business practices, and 87% support mandatory climate disclosure. And in 2022, more than 500 investors representing nearly $40 trillion in assets under management called for governments around the world to strengthen climate disclosure standards, such as by requiring mandatory reporting.   


On the federal side, President Joe Biden issued his first and only veto since taking office to protect a U.S. Department of Labor rule that would allow employee pension plan fiduciaries to consider all materially relevant financial risks.