New ESG Requirements For Banks That Hold Public Funds May Raise Challenging Compliance Issues

Much ink has been spilled about ESG laws and regulations targeted at the investment of public funds, and rightfully so. Yet, there has been little discussion of novel requirements imposed on banks that simply hold state or local funds as depository institutions. To hold such funds, banks typically must receive state or local approval by going through a designated regulatory process. What was once squarely within the realm of the mundane has now become another flashpoint in the evolving ESG debate. New York City and Florida are at the forefront of this new conflict—on opposite sides of the spectrum—and have put in place enhanced laws and regulations mandating that ESG or anti-ESG requirements be met in order for banks to continue to hold public funds.