Clik here to view.
Clik here to view.
Secretary of State Chuck Gray went outside the scope of his statutory authority in rules he proposed related to environmental, social and governance investments, also known as ESG. That’s according to Gov. Mark Gordon, who line-item vetoed portions of Gray’s proposed rules Tuesday morning.
The remainder of the rule, which focuses on disclosure requirements, goes into effect immediately.
ESG — a type of investment strategy that takes environmental, social and governance into account while evaluating business risks and opportunities — has become the object of Republican ire in recent years. It’s seen by some conservatives as harming the fossil fuel industry, and more broadly, a sort of “woke” virtual signaling.
“I too vehemently oppose the national push for implementing Environmental, Social, and Governance (“ESG”) factors in investment strategies,” Gordon wrote in a letter to Gray. “I believe the national ESG push is a thinly veiled attempt to inject unwarranted political ideology into the lives of everyday Wyoming citizens, even at the expense of their financial wellbeing.”
“Even so, I strongly believe that our zeal to oppose this radical push does not justify implementing rules that go beyond the legal authority of a state agency,” Gordon wrote.
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The Wyoming State Loan and Investment Board — a group that includes both Gordon and Gray along with Wyoming’s three other statewide elected officials — approved a policy in August to require companies doing business with the state to disclose any ESG principles.
Gray’s proposed rules took things further by requiring all investment brokers, broker-dealers and securities agents in Wyoming — not just those working with the state — to disclose ESG principles. Additionally, the rules proposed require customers to consent to ESG principles in writing every three years.
Following the governor’s decision, Gray stood by his actions to address ESG.
“Wyoming needs real leadership on these issues, rather than the defensive tone that Governor Gordon lays out in his letter,” Gray wrote in a statement to WyoFile. “ESG investments are a malicious attack on Wyoming’s core industries and our entire way of life. With an increasing trend of mutual funds and brokerage firms being pressured by woke politicians to offer investment products which employ ESG principles, we must take a concrete, proactive approach to protect our state and consumers.”
Gray also maintained that his office acted within its legal bounds with the proposed rules — an argument he made in two previous letters to the governor throughout the rulemaking process.
“The Wyoming Uniform Securities Act clearly bans investment professionals from engaging in fraud and deception,” Gray wrote to WyoFile. “Investment professionals who push ESG ideology in their investment decisions without obtaining their customer or client’s consent to the fact that ESG investments do not solely consider profit maximization are engaging in deceitful conduct.”
Details
Gordon’s charge that Gray’s rules went outside the bounds of his authority echoes concerns lawmakers have expressed this session with the secretary’s litigation decisions. It also draws parallels to opposition Gray has faced for his proposed voter registration rules.
Gordon said his decision on the ESG rules was based on two things. The vetoed language, Gordon wrote, was “outside the scope of the securities regulatory authority delegated under Wyoming statute,” and “likely runs afoul of federal securities law and principles of preemption.”
That said, Gordon didn’t veto the proposed rules altogether.
“I agree with your efforts to better illuminate investment practice and strategy through disclosure,” Gordon wrote. “Properly informed investors are always better able to make good decisions for themselves.”
As such, Gordon left a portion of the rules’ disclosure requirement intact, but vetoed the more intricate demands. Gray said he was at least glad for the former.
“Although the Governor’s line item veto weakened the amount of protections we attempted to provide to customers and clients to protect them from the dangers of ESG investment strategies, the final rules offer a starting point to protect Wyomingites from social ideologies imposing their radical, clown-show ESG agenda on our state,” Gray wrote.
Clik here to view.
Broker-dealers will need to disclose ESG principles, for example, but they will not need to do so via “simultaneous verbal and written communication,” as the rule originally set out to require. Written communication will suffice and will only be required once a year or “whenever the broker-dealer undergoes a suitability review with a customer.”
Additionally, customers will not be required to provide written consent in a “separate and distinct” form “from any other disclosure form” as the rules proposed.
That would have imposed “unnecessary and burdensome state oversight into customer choices,” Gordon wrote. “Such a requirement is an affront to personal choice and a free market.”
Furthermore, Gordon argued that “Wyoming law does not dictate how consumers must make personal investment decisions involving ‘social criteria,’ nor does it dictate that ‘maximizing investment returns’ is the default requirement for how consumers should choose to invest their funds. That decision is largely left to the consumer, whose needs may vary greatly in circumstance.”
From here, the approved portion of the rule will be filed with the secretary of state’s office, and the disapproved portion is null and void. The rule will remain in effect unless it is superseded by another rule, is temporarily replaced by an emergency rule or is repealed altogether.
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