Tennessee

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ESG Category

Summary

Tennessee Attorney General Sues BlackRock Over ESG

■ On December 18, 2023, the Tennessee Attorney General filed a civil suit against BlackRock in state court, alleging that BlackRock breached state consumer protection laws by failing to disclose the extent of its ESG investing activities. Tennessee’s lawsuit claims to be a response to BlackRock’s statements and assertions regarding ESG’s influence over its business decisions across its various assets. The complaint addresses BlackRock’s use of corporate engagement and the voting of its shares to achieve various climate-related policy goals.

SB2649: Prohibits State Treasurer from Entering into a Contract with a State Depository if the State Depository has a Policy Prohibiting Financing to Companies in the Fossil Fuel Industry

Effective date
7/1/2022

Adopted
5/11/2022

Introduced
2/2/2022

Legislation

Target Entities That Boycott Certain Industries

■ As of July 1, 2022, the state treasurer shall not enter into a contract or amendment with a state depository for the state's primary cash management banking services if the state depository has a policy that prohibits financing to companies in the fossil fuel industry.

■ There is an exemption that permits the state treasurer to award or enter into a contract or amendment with a state depository that has such a policy upon a determination that the services sought are necessary for the treasury or the state to perform its functions, and that absent such an exemption, the treasury or the state would be unable to obtain the services sought from another contractor.

SB0955: An act to amend Tennessee Code Annotated, Title 9, Chapter 4, relative to investments

Effective date
7/1/2023

Adopted
5/17/2023

Introduced
2/2/2022

Legislation

Restrict Use of ESG Factors; Focus on Pecuniary Characteristics

■ Authorizes the state treasurer, with the approval of the attorney general and reporter, to contract with additional counsel, who must be paid compensation for services as the treasurer may deem just, in cases where the interest of the state treasurer requires additional legal counsel to advise on issues concerning the state treasurer's fiduciary obligations and responsibilities, including the investment, reinvestment, management, and selection of investment options for program assets.

■ Amends TCA Title 9, Chapter 4.

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Nature of
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Summary

■ Requires the governing bodies of the retirement system and political subdivision pension plans to review at least annually, no later than January 15, 2026, and by January 15 of each subsequent year,  the retirement system's or political subdivision pension plan's direct holdings as of December 31 of the prior calendar year to determine which direct holdings, if any, constitute "restricted investments."

■ Requires the state treasurer to divest from restricted investments identified by the board of the retirement system and report the divestment to the retirement system's investment committee.

■ Requires the governing body of a political subdivision pension plan's direct holdings to divest from restricted investments they identify, in accordance with the governing body's investment policy.

■ Requires the board, with respect to any restricted investment they cannot divest from expeditiously, to develop a written divestment plan to divest expeditiously from such restricted investment, no later than July 1 of each year, and submit the plan to the chair of the council on pensions. Requires the divestment plan to be developed and implemented in a manner consistent with the prudent investor rule and standard of care.

■ "Restricted investment" means a company that is known through publicly available information to be majority-owned by China.

■ Permits the Secretary of State to administratively dissolve an entity owned or controlled by a foreign government or foreign nongovernment person determined to be a foreign adversary by the United States Secretary of Commerce and specified in the Code of Federal Regulations, except for entities involved in transactions approved by the Committee on Foreign Investment in the United States. 

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Summary

HB2887/SB2842: Legislation Defining "materially negative financial impact" and "service provider" for purposes of the Uniform Prudent Management of Institutional Funds Act

■ In managing and investing in an institutional fund, the bill prohibits (1) institutions from considering any of the goals listed below with regard to a possible investment by the institutional fund, or selection of a service provider, or the voting of shares by the institutional fund; and (2) selecting a service provider that has a purpose or ambition for its customers, investment portfolio, or a portfolio company, or has joined or participates in an initiative or organization that has a purpose or ambition for its signatories' or members' customers, investment portfolios, or portfolio companies, to be aligned with any of the following goals beyond what is required by law:

(A) Directly or indirectly eliminating, reducing, offsetting, or disclosing reduction targets for greenhouse gas emissions, including by restricting the exploration, production, utilization, transportation, sale, or manufacturing of timber, mining, agriculture, or fossil-fuel-based energy;

(B) Instituting corporate board or employment composition targets or criteria that incorporate characteristics protected in this state under title 4, chapter 21;

(C) Reducing the amount of business conducted with an entity, for the purpose of advancing any of the foregoing goals; or

(D) Advancing the purposes of an international agreement related to any of the foregoing goals.

■ The requirements regarding selecting  a service provider do not apply in the event that the it would have a materially negative financial impact on the fund; provided, that the institution complies with the following requirements:

(1) Contracts with the service provider that most closely meets the requirements of the legislation and would not have a materially negative financial impact on the fund;

(2) Documents its determination, along with evidence supporting its determination, including a description of the services of at least three (3) alternative service providers consulted that includes a description of fees, historical investment performance, and compliance with this legislation; (3) Includes such documentation and evidence in its minutes or other publicly available medium; (4) Publicly posts notices seeking a service provider that would comply with the legislation at the following times: (i) No later than sixty (60) days after the selection of a service provider that does not meet the requirements; (ii) No later than sixty (60) days before the beginning of any  following procurement period under which that service provider could be replaced; and (iii) As part of any following procurement announcement under which that service provider could be replaced, and (5) Limits the contract duration to no more than a year and re-evaluates its determination at least annually.

■ Requires a financial institution to do the following in order to provide fair access to financial services: (1) Make each financial service it offers available to each person in the geographic market served by the financial institution on a non-discriminatory basis; (2) Approve or deny a person a financial service that the financial institution offers solely based on the quantitative impartial risk-based financial standards established in advance by the financial institution; (3) Not deny a person a financial service that the financial institution offers, except as provided in (2) above, when the effect of the denial is to prevent, limit, or otherwise disadvantage the person from entering or competing in a market or business segment; or in such a way that benefits another person or business activity in which the financial institution has a financial interest; and (4) Not deny, in coordination with others, except as provided in (2) above, a person a financial service that the financial institution offers.

■ In order to provide financial services in this state, a financial institution that utilizes standards or guidelines based on non-financial, non-traditional, or subjective criteria, such as ESG scores or diversity, equity, and inclusion policies, would be required to do the following under this bill: (1) Disclose to the department of financial institutions the specific standards, guidelines, and criteria used by the financial institution to determine access or denial of a financial service to a person in this state; (2) Provide to a person denied a financial service a disclosure with the specific data, information, criteria, and standard used to support the denial, in bold fourteen-point font; and (3) Comply with rules promulgated by the department.