As we continue to monitor developments in state ESG laws, Oklahoma has remained a frequent focus of ours because it has had more activity than most peer states related to the contents of their "blacklist" of asset managers and financial institutions who are restricted from doing business with the state.

Initially Oklahoma had put out a list of 13 managers, which they later reduced to six and the contents of the smaller list have also been subject controversy. Most notably, the pension board for the Oklahoma Public Employees Retirement System has applied for a fiduciary exemption to avoid needing to divest from holdings with managers who remain on the shortened list. Nine of the ten members of the pension board have voted in favor of this fiduciary waiver, with only the state treasurer dissenting. As reported by pension and investments, the state may be reconsidering the contents of its law based on these recent actions.

These developments really highlight the challenges that can come with trying to restrict the institutions which states contract with and how restrictions can conflict with the ability for pension plans to effectively invest their assets so as to ensure the ability to pay benefits to current and future retirees.

If a plan is unable to successfully invest its assets, the only choices a state will be left with are to increase taxes, cut other spending to fund the plans more or reduce benefits.

We will continue to watch as states with boycott laws, such as Oklahoma, Texas, and Kentucky continue to manage their blacklist as the potential impacts of excluding pensions from dealing with large asset, managers become clearer.

We will also continue to watch as these states make changes to their blacklists. The Texas state comptroller has posted FAQs on how the Texas list is constructed, and how institutions may be removed from the list in the future. In addition, the Oklahoma state treasurer has recently made remarks to the effect that an institution may be eligible to be removed from the blacklist if it makes changes in how it invests in the fossil fuels industry, and in how it discusses its engagement with the fossil fuels industry.

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