Last spring, the Alabama Legislature passed what some Republicans called the strongest piece of legislation battling controversial environmental, social, governance (ESG) investing in the country. Gov. Kay Ivey signed the bill into law in June.
ESG measures how a corporation aligns itself with social goals beyond earning a profit for its shareholders, such as reducing carbon emissions, supporting specific social movements and promoting "diversity, equity and inclusion" (DEI).
Corporations receive an ESG score from organizations, such as MSCI, supposedly based on their adherence to a vaguely defined set of values.
Some large banks and asset management groups, such as Blackrock and Vanguard, use ESG ratings to choose where to direct capital. However, some of these companies now use different words to refer to the same investment criteria.
Conservative critics have called ESG investing a "wokeness report card" and compared it to China's social credit score system.
1819 News reached out to a spokesman with the Alabama Legislative Services Agency (ALSA), which provided professional support to the Alabama Legislature and assisted State Sen. Dan Roberts (R-Mountain Brook) and his colleagues in drafting the bill.
The spokesman also discussed the particular application of the bill and the various exceptions included in the text to provide an in-depth understanding of how the bill functions as part of the law.
Though Alabama's legislation may still protect in-state companies from certain aspects of ESG, it may be surprising to some that the acronym "ESG" is never explicitly mentioned in the text of the law.
Instead, the law prohibits "governmental entities" from entering into "certain contracts" with organizations that engage in an "economic boycott." It also protects companies in Alabama from being required by the government to participate in boycotts and requires the Attorney General to take action against federal law that penalizes companies for not participating.
According to the legislation, a company engages in an economic boycott when it refuses business with or penalizes another company solely for any of the following reasons:
That company is in or involved with the fossil fuel, timber, mining, agriculture or firearm business.
That company does not or is not expected to meet environmental criteria not required by law.
That company does not or is not expected to meet certain employment, board compensation or disclosure requirements not required by law.
That company does not commit to facilitating abortions and sex change surgeries and treatment.
Under the law, companies are not prohibited from engaging in boycott activities unless they want to enter a contract with a "governmental entity," which is any "state agency, department, regulatory body, board, bureau, or commission, or any county, municipality, incorporated or unincorporated local government, or other political subdivision of the state."
Earlier this month, 1819 News reported that a contract between the City of Birmingham and PNC Bank could potentially be in violation of the law. The Birmingham City Council entered a $4.5 million funding agreement with PNC to improve the historic baseball stadium Rickwood Field.
Like many other large banks, PNC continues to defend ESG investing. In January, PNC announced its commitment to facilitate $30 billion in ESG investments over the next five years.
1819 News was correct in that the law in question applies to the City of Birmingham, being included under the definition of a "governmental entity." Nevertheless, there are exceptions listed in the text of the legislation that keep it from applying to that particular contract.
The most obvious is that, though the law was signed and enacted on September 1, the restriction on state contracts only applies to those signed on or after October 1, according to Section 8 of the act. Since Birmingham entered the contract with PNC in September, the part of the law restricting government contracts would not apply.
But even if the City of Birmingham had entered into the contract after October 1, the type of contract it entered with PNC is specifically exempted from the restrictions in the legislation.
According to Section 2 of the law, contracts pertaining to the issuance or management of debt obligations do not, like other contracts with governmental entities, have to include written verification from the company that they do not engage in economic boycotts.
While battling to make it through the legislature, Roberts' original bill was heavily amended following pushback from Birmingham-based Regions Financial and the company's lobbyist, senior vice president and head of state government affairs and economic development Jason Isbell.
According to the enrolled version of the act, companies entering into contracts with governmental entities have to verify they do not engage in economic boycotts unless:
The company has less than 10 employees.
The contract involves a payment of less than $15,000.
The contract pertains to "the issuance, incurrence, or management of debt obligations."
The contract pertains to "the deposit, custody, management, borrowing or investment of funds."
Not entering the contract would significantly increase cost or limit the quality of options available, as determined by objective information available to the governmental entity.
Section 3 of the legislation prevents governmental entities from being penalized for complying with Section 2. Section 4 specifically protects companies in the state from being penalized for not engaging in economic boycotts, as defined earlier.
If a governmental entity does enter into a contract with a company after October 1 for a purpose not exempted by the act, it would be entirely up to the Attorney General to enforce the law. An ordinary citizen could not sue or void a contract using the law in question.
When approached by 1819 News, Roberts spoke to the lasting impact of the act.
"Our goal was to defend Alabama companies … so that they would be protected against the boycotting of those that are practicing ESG, so that's where we settled," he said. "You're looking at timber. You're looking at forestry. You're looking at mining … We have some huge employers here … We did not want our Alabama businesses disenfranchised because of a new philosophy that was growing. That's it."
To connect with the author of this story or to comment, email will.blakely@1819news.com or find him on Twitter and Facebook.
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