Some state governments have begun to fight back against progressive ESG initiatives and the attempt to redefine the purpose of businesses.
States can enact legislation that generally requires companies that contract with the state to certify that they do not boycott or discriminate against companies to achieve woke political objectives. Specifically, states can require contractors to not discriminate against those engaged in conventional energy production, mining, agriculture, timber, or firearms industries. The following model legislation would accomplish this objective.
Summary: AN ACT relating to state contracts with certain companies that engage in economic boycotts based on environmental, social, or governance criteria.
Section 1: The [name of state] finds that:
1) numerous essential American industries—including fossil fuel production, agriculture, timber production, and firearms—are being targeted for boycotting, divesting, and sanctioning by large corporations and public and private institutional investors;
2) the goal of these colluding parties is to starve targeted legal industries of capital, restrict their productivity, and redirect that capital to favored industries;
3) these parties are working in concert with many state and federal lawmakers and regulators, as evidenced most recently by new climate disclosure rules from the Securities and Exchange Commission;
4) restricting the supply of energy and other essential commodities, without effective substitutes for those commodities, only serves to raise prices on consumers, profoundly impacting the poorest among us;
5) denying financing to American companies, who are among the most socially and environmentally responsible companies in the world, only serves to support hostile nations and less responsible producers;
6) banks and insurance companies are increasingly denying financing to creditworthy companies to market their environmental credentials to the detriment of consumers, shareholders and society;
7) institutional investors are divesting from entire industries and pressuring corporations to commit to environmental goals, such as reducing greenhouse gas emissions to zero by 2050, to burnish their environmental credentials or promote their own environmental, social, and governance funds at the expense of investor returns;
8) large investment firms, through their proxy votes on shareholder resolutions and board elections, are colluding to force companies to direct money, time, and attention away from their core responsibility of increasing shareholder returns, driving capital allocation decisions and political change outside the democratic process;
9) corporations are boycotting and sanctioning essential legal industries, such as fossil fuel and agriculture producers, by denying them capital, refusing to provide them with products or services or imposing undue burdens on them;
10) the collusion of corporations, and institutions to boycott, divest from, or sanction any industry may violate existing antitrust and fiduciary duty laws and harms consumers, shareholders, and this state; and
11) states, when financially prudent, should avoid doing business with companies that engage in such potentially illegal conduct, and threaten harm to this state, its businesses, and citizens.
Section 2. Prohibition on Contracts with Companies Engaging in Economic Boycotts
a) “Company” means a for-profit organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, or limited liability company, including a wholly owned subsidiary, majority-owned subsidiary, parent company, or affiliate of those entities or business associations. For the purposes of this section, “company” does not include sole proprietorships.
b) “Governmental entity” means a state agency or political subdivision of this state.
c) “Ordinary business purpose” does not include any purpose to further social, political, or ideological interests. A company may reasonably be determined to have taken an action, or considered a factor, with a purpose to further social, political, or ideological interests based upon evidence indicating such a purpose, including, but not limited to (i) branding, advertising, statements, explanations, reports, letters to clients, communications with portfolio companies, statements of principles, or commitments, or (ii) participation in, affiliation with, or status as a signatory to, any coalition, initiative, joint statement of principles, or agreement.
d) “Economic boycott” means, without an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any commercial action that is intended to penalize, inflict economic harm on, limit commercial relations with, or change or limit the activities of a company because the company, without violating controlling federal or state law:
i) engages in the exploration, production, utilization, transportation, sale, or manufacturing of, fossil fuel-based energy, timber, mining, or agriculture;
ii) engages in, facilitates, or supports the manufacture, import, distribution, marketing or advertising, sale, or lawful use of firearms, ammunition or components parts and accessories of firearms or ammunition;
iii) does not meet, is not expected to meet, or does not commit to meet environmental standards or disclosure criteria, in particular to eliminate, reduce, offset, or disclose greenhouse gas emissions;
iv) does not meet, is not expected to meet, or does not commit to meet corporate board, or employment, composition, compensation, or disclosure criteria that incorporates characteristics protected in this state under [state civil rights statute];
v) [does not facilitate, is not expected to facilitate, or does not commit to facilitate access to abortion, sex or gender change, or transgender surgery];
vi) [insert additional state specific boycotting criteria]; or
vii) does business with a company described by Paragraphs (i-vi).
2) Provision Required in Contract.
a) This section applies only to a contract that:
i) is between a governmental entity and a company with 10 or more full-time employees; and
ii) will pay a company [minimum contract size] or more over the term of the contract that is to be paid wholly or partly from public funds of the governmental entity; provided, however, the provisions of this paragraph shall apply separately to all companies in a multiple party contract.
b) Except as provided by Paragraph (2)(c), a governmental entity may not enter into a contract with a company for goods or services unless the contract contains a written verification from the company that it:
i) does not engage in economic boycotts; and
ii) will not engage in economic boycotts during the term of the contract.
c) Subsection (b) does not apply to a governmental entity that determines the requirements of Subsection (b)
i) are inconsistent with the governmental entity's constitutional or statutory duties related to the issuance, incurrence, or management of debt obligations or the deposit, custody, management, borrowing, or investment of funds; or
ii) prevent the governmental entity from obtaining the supplies or services to be provided in an economically practicable manner.
d) [other exceptions for constitutional, statutory, or fiduciary duties]
3) Interference with State Contracts
a) No party [term that includes federal government under state law] may take action to penalize or threaten to penalize any financial institution for compliance with this [article].
b) Any party taking such action shall have caused harm to this state, including by interfering with the state’s sovereign interests in administering its programs and with the state’s commercial relationships with its financial institutions.
a) This article, or any contract subject to this article, may be enforced by the attorney general, or [applicable executive branch official].
b) If the attorney general or [applicable executive branch official] has reasonable cause to believe that a person has engaged in, is engaging in, or is about to engage in, a violation of this article, he may:
i) Require such person to file on such forms as he prescribes a statement or report in writing, under oath, as to all the facts and circumstances concerning the violation, and such other data and information as he may deem necessary.
ii) Examine under oath any person in connection with the violation.
iii) Examine any record, book, document, account or paper as he may deem necessary.
iv) Pursuant to an order of the [state trial court], impound any record, book, document, account, paper, or sample or material relating to such practice and retain the same in his possession until the completion of all proceedings undertaken under this article or in the courts.
c) In addition to any other remedies available at law or equity, a company that enters into a contract with a government entity containing any verifications required by Section 2 and engages in any economic boycott during the term of the contract shall be obligated to pay damages to the [state] in an amount equal to three times all monies paid to the company under the contract.
5) Applicability and Effective Date