Lawyers have weighed in on the Kentucky Bank Association suing the state’s attorney general for allegedly exceeding his authority under anti-ESG legislation.
Earlier this month, the nonprofit trade association – in collaboration with HOPE of Kentucky (a subsidiary of KBA) – announced a lawsuit in Franklin Circuit Court against Daniel Cameron for issuing six subpoenas and civil investigative demands (CIDs) to Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
The attorney general had made the requests as part of a “multi-state investigation into [the banks] for alleged antitrust and consumer protection law violations related to ESG (environmental, social, governance) investment practices”.
The initiative, which involves 19 attorneys general, was announced in mid-October by Missouri’s Eric Schmitt. The legal officers – including representatives from Texas, Virginia, Arizona and Indiana – specifically requested documents relating to the banks’ involvement with the Net-Zero Banking Alliance.
According to KBA’s filing, the lawsuit is an action to “curtail, prevent and enjoin efforts by AG Cameron to regulate the business of banking that exceeds his powers as the attorney general”.
The document claims that there are 24 separate demands for information and 20 separate demands for documents in CIDs.
As well as arguing that Cameron is acting in excess of his legal authority, the lawsuit accuses him of violating first amendment rights and Senate Bill 205.
Passed in 2021 by the Kentucky general assembly, Bill 205 states that if a financial services, banking or investment company boycotts fossil fuel companies, the state has certain rights to stop doing business with them.
The filing by KBA claims the attorney general is in breach for several reasons, including the fact that the general assembly “has plainly assigned to the Treasurer, and not the attorney general, the task of determining who might be engaged in an energy company boycott”.
In a release, Ballard Cassady, president and CEO of the KBA, said: “Lawmakers could easily have directed that power to be shared by the attorney general, but they did not. For that reason, we are forced to respond to the attorney general’s action in seeking vast amounts of information from our member banks that greatly exceeds the terms and obvious intent of that original statute.”
Cassady added that KBA’s members understand the values and goals behind the passage of SB205, but believe that cannot be the basis of a precedent for allowing any government official or agency to exceed its authority over our industry.
“Today, it is the ESG-type issues raised by the AG’s actions, tomorrow it could be dictating interest rates or hiring practices,” he said. “Kentucky banks must be allowed to make good business decisions for their bank, their customers and community without worrying about how they relate to broader ideological or political goals.”
Lance Dial, who has been following the development of anti-ESG and related regulation for Boston law firm Morgan Lewis, where he is a partner, said: “We can and should expect, as a general matter, more legal pushback on anti-ESG legislation and investigations on a variety of grounds.”
For Dial, an interesting aspect of the Kentucky case is that the plaintiffs are using the existence of the recently passed SB205 as evidence that the state did not “outlaw energy company boycotts”.
“In their view, the existence of the legislation vests the state treasurer and NOT the AG with the authority and obligation to investigate whether companies are ‘boycotting energy companies’ AND sets forth the remedies,” he said. “So, in a way, the plaintiffs here are using anti-ESG legislation as a tool to push back on broader anti-ESG activities, which is an interesting development.”
Sanford Lewis, an attorney and director of the Shareholder Rights Group, sees potential for further legal pushback against anti-ESG measures by state officials and politicians.
“The AGs are telling asset managers to blindly ignore widely recognised risks (climate change, worker health and safety, etc) which, if ignored, could compromise the long-term value of investors’ assets, thereby violating the managers’ fiduciary duty to protect the interests of those who’ve entrusted them with their money,” he said.
“If state attorneys general and treasurers continue to attack common-sense investing practices, they will have a high burden explaining to the courts how accounting for risk is against the law.”
However Jane Pittaway, executive vice-chair for Lawyers for Net Zero, warns against extrapolating from the Kentucky case, noting that it mainly concerns “procedural issues”.
“Specifically, it focuses on the limits of the attorney general’s authority rather than on the pros and cons of the SB205. To that extent, while some of these lawsuits are headline-grabbing, it is a bit of a storm in a teacup and are unlikely to lead to a wave of copycat lawsuits.”
A spokesperson for Cameron’s office told Responsible Investor: “Our office is reviewing the lawsuit filed by KBA. We plan to file a response by the deadline on Wednesday 23 November.”
RI contacted banking associations in the other states who have attorneys general involved in the Alliance. Of those which responded, none has any current plan to take similar action to KBA.