Arkansas' ESG Oversight Committee voted Wednesday to keep 10 financial service providers on the committee's list of such firms that conduct business with state government and discriminate against fossil fuel and/or energy companies.
The five-member committee also voted not to take six other financial service providers off the list because they are registered investment advisers exempt from Act 411 of 2023, and also not to keep another financial provider on the list because it doesn't exist.
In a 3-2 decision, the Arkansas ESG Oversight Committee voted to keep Goldman Sachs & Co. and Goldman Sachs Group Inc. on the committee's list although an attorney for Goldman Sachs maintained that the companies don't discriminate against fossil fuel and/or energy companies.
The committee also tabled a decision until Monday about whether to keep TD Bank Group and TD Securities on the committee's list in order to allow a representative for the companies to answer questions about why the companies don't believe they discriminate against fossil fuel and/or energy companies.
Lobbyist Chase Dugger, representing TD Bank Group, said company officials were advised by the state treasurer's staff that they could not speak at the committee's meeting Wednesday. But committee Chairman David Scott, chief legal counsel in the state treasurer's office, said "I am not aware of that."
On March 21, the committee voted to find that these financial service providers that conduct business with state government discriminate against energy and/or fossil fuel companies. The financial service providers were notified about the committee's findings and given an opportunity to demonstrate within 30 days' receipt of the written notice that the providers are not discriminating against energy and/or fossil fuel companies.
SKEPTICISM ABOUT POLICIES
At the outset of Wednesday's meeting, Scott said "I think it is logical to believe that some of these decisions [by financial service providers] that we are seeing that are couched as policies based on ordinary business practices are actually based on environmental policy decisions."
In voice votes, the committee voted Wednesday to determine the following financial service providers discriminate against energy and/or fossil fuel companies because they didn't demonstrate to the committee that they don't discriminate against these companies.
Goldman Sachs & Co., and Goldman Sachs Group Inc.
Royal Bank of Canada and RBC Capital Markets.
UBS Group AG and UBS Securities.
Nomura Asset Management and Nomura Securities.
Credit Suisse Group AG and Credit Suisse Securities LLC.
Along with Scott, committee members John Sinclair and Mike Frost voted to keep Goldman Sachs & Co. and Goldman Sachs Group Inc. on the list. Committee members Steve Cook and Tom Lundstrum dissented.
Scott initially declined a request by lobbyist Michael Lamoureux -- who said he represents Goldman Sachs -- for Michael Bosworth, deputy general counsel for Goldman Sachs, to speak to the committee. The committee eventually agreed to allow Bosworth to speak to the committee about his letter.
Bosworth noted that Goldman Sachs Chairman and CEO David Solomon said last year at the American Energy Security Summit in Oklahoma City that traditional energy companies are hugely important to the global economy and hugely important to Goldman Sachs, and that Goldmach Sachs is going to continue to finance these companies for a long time.
He said he understand Scott's skepticism about financial service providers using "the ordinary business exception" to claim they are not discriminating against fossil fuel and/or energy companies.
Goldman Sachs provides a range of financial services to energy and fossil fuel companies and more than $140 million in financing for fossil fuel companies since 2016, Bosworth said.
Goldman Sachs declines to provide financing for the development of new coal-fired power generation, new thermal coal mining, and new upstream Arctic oil development and exploration, and that's a business decision based on the risks -- not discrimination based on a company's status as a fossil fuel or energy company -- he said.
Scott said it appears to him that Goldman Sachs' actions are based on environmental policies, not as an ordinary business practice.
LAW 'POORLY DRAFTED'
But Cook, who is a retired legal counsel for the state Senate, said Act 411 of 2023 is "poorly, poorly drafted" and discrimination is "not well-defined" under Act 411 of 2023. Act 411 of 2023 was sponsored by Rep. Jeff Wardlaw, R-Hermitage, and Sen. Ricky Hill, R-Cabot.
He made a motion for the committee to take Goldman Sachs & Co. and Goldman Sachs Group off the committee's list. Cook's motion died because another committee member didn't second that motion to allow the committee to vote on the motion.
In other action, the committee voted to take the following financial service providers off the committee's list of providers that are discriminating against energy and/or fossil fuel companies because the committee concluded that they are exempt from Act 411 of 2023 because they are registered investment advisers:
UBS Asset Management and UBS Financial Services.
Credit Suisse Asset Management.
Royal Bank of Canada Global Asset Management.
Goldman Sachs Asset Management.
TD Asset Management.
Under Act 411 of 2023, discrimination "does not include actions by an investment adviser according to the investment-related guidelines, policies, or preferences of its clients."
On March 21, the committee voted not to place BlackRock International and BlackRock on the committee's initial list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies because BlackRock is a registered investment adviser.
In other action Wednesday, the committee voted to take the Normura Group off its list after Nancy Prahofer of Nomura Holding American advised Scott in a letter dated April 26 that "there is neither a legal entity by that name nor any entity using that name to conduct business in the United States."
STATE TREASURER'S ROLE
Under Act 411 of 2023, the ESG Oversight Committee is required to prepare and provide to each public entity by Tuesday a list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies, or otherwise refuse to deal based on environmental, social justice or other governance-related factors. The state treasurer must maintain the list as determined by the ESG Oversight Committee on the state treasurer's website.
The state treasurer is required under the law to divest the state of direct or indirect holdings with a financial services provider included on the list, as are state and local governments. Upon furnishing the list to the state treasurer, the committee shall expire automatically under Act 411 of 2023.
The governor may re-establish the committee at any time by notifying the Senate president pro tempore, the speaker of the House, the attorney general and the state treasurer if the governor believes a financial services provider has begun to discriminate or ceased to discriminate against such companies as described under Act 411 of 2023.
On March 14, Arkansas' ESG Oversight Committee decided on a method for winnowing the financial service providers that the committee evaluates for placing on its list of providers that discriminate against energy, fossil fuel, firearms or ammunition companies, or otherwise refuse to deal based on environmental, social justice or other governance-related factors. The committee voted to direct the state treasurer's office to determine the financial services providers that hold state funds that are part of Climate Action 100 and either part of the Net Zero Banking Alliance or the Net Zero Asset Managers Initiative.
At that time, officials representing state government retirement systems told the ESG Oversight Committee they have not divested any investments as a result of Act 411 of 2023 and were waiting for the committee to determine its list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies, or otherwise refuse to deal based on environmental, social justice or other governance-related factors.
After Wednesday's meeting, Mark White, executive director of the Arkansas Teacher Retirement System, said in a written statement, "We will be discussing next steps with our investment consultant and legal counsel in the coming days as we put a plan together. I will bring a recommendation and proposed timeline to the Board of Trustees in their June meeting.
"My understanding of today's vote is that the System will need to divest itself only from the bonds and other publicly-traded securities," he said. "The $240 million in property and agricultural investment funds are not subject to divestment because those managers are all part of UBS Asset Management which the Committee carved out."
Amy Fecher, executive director of the Arkansas Public Employees Retirement System, said Wednesday in a written statement that Act 411 of 2023 gives retirement systems up to one year to divest once a list is established.
"Our [investment] staff will watch these financial services providers closely during that time frame with the goal of divesting at the most advantageous time for the system," she said.
David Clark, executive director of the Arkansas Local Police and Fire Retirement System, said Wednesday in a written statement that "Based on the committee's vote today on Goldman Sachs Asset Management, LOPFI will not have any actions to take.
"That was the only investment management firm on the preliminary list that manages assets for LOPFI, so since they were excluded, divestment is not required," he said.