Arkansas' ESG committee could have decisions in coming months

(The Center Square) - A committee that will evaluate whether financial companies with investments in Arkansas consider environmental, social or governance principles or financial ones should be meeting soon, said Mark White, executive director of the Arkansas Teacher Retirement System.

White spoke to the Joint Performance Review Committee about ESG and BlackRock investments, a company often scrutinized for its ESG policies.

Act 411 of 2023, passed by Arkansas lawmakers last year and signed by Gov. Sarah Huckabee Sanders, requires the state to set up a five-member oversight committee to evaluate companies' ESG policies. The committee will determine if financial service providers discriminate against entities in the energy, fossil fuel, firearm or ammunition industry. One member each is appointed by the governor, attorney general, president pro tem of the Senate and the House speaker. The fifth member is the state treasurer of a designee, according to the law.

Four of the five members are appointed, White said.

"We should have decisions by that committee within the next couple of months," White said. "Once the ESG oversight committee makes their decisions and identifies which companies are the true bad actors that the state needs to avoid, we'll work with our investment consultant to implement those recommendations," White said. "There is an exemption for Act 411 for investors in which there is a maturity date or something else where the state may incur a significant loss if it pulls out."

Public funds are an easier transition. White said that private funds, like a global and power infrastructure fund the teacher retirement system has with BlackRock, are more of a challenge.

"The only way we can pull out of the is to find another investor in the secondary market to purchase our interest," he said. "There may or may not be someone who is open to doing that and if they are, they will almost certainly expect a significant discount in purchasing it."

The Arkansas Teacher Retirement Fund has three holdings with BlackRock: an equity index fund, a bond fund, and the energy infrastructure fund, White said. The Arkansas Public Employees' Retirement System has no investments with BlackRock, Amy Fecher, the system's executive director, told the committee.

Other states have recently passed laws banning companies that use ESG guidelines. Oklahoma has six companies on its restricted list, Texas has 15 and Kentucky has 11, according to White.