States restricting business with banks that “boycott” fossil fuels could incur heavy costs, study says

Attempts by Republican policymakers to boost fossil fuels by banning their governments from doing business with sustainability-minded companies could cost states millions, according to a study released Thursday.

Researchers looked specifically at the potential effects on Florida, Kentucky, Louisiana, Missouri, Oklahoma and West Virginia if they passed Texas-style legislation restricting investment opportunities on municipal bonds and found that it would cost them between $264 and $708 million in additional interest payments. can cost. The study found that the states had not passed such broad legislation.

The six states are below two dozen which last year enacted or passed legislation that prohibits government agencies from doing business with financial companies that consider environmental, social and corporate governance (ESG) considerations when making investment decisions as anti-ESG efforts proliferated from state treasurers and attorneys general to governors and legislators. Republican policymakers call ESG boycotting energy companies and argue that the investment funds are pursuing a liberal agenda that harms jobs.

The research by Philadelphia-based Econsult Solutions was commissioned by the Sunrise Project for two environmental policy groups, As You Sow and Ceres Accelerator for Sustainable Capital Markets. It expands on a Wharton School of Business study released in July that focused on costs to Texas after anti-ESG laws prohibiting business with banks that have policies against fossil fuels and firearms went into effect there in 2021.

Steven Rothstein, CEO of Ceres Accelerator, calls the anti-ESG laws and changes at state pension funds short-sighted and political. He argues that these approaches will only hurt taxpayers.

In the long run, we fear that those taxpayers and retirees will actually be hurt with higher risk and low returns, he said.

With Texas leading the way as the first state To enact anti-ESG laws, the study’s authors assumed similar laws and bond market restrictions in the six states they wanted to study. They used data on municipal bond transactions from January 2017 to April 2022 and looked at changes in Texas bonds that occurred during the last 12 months of the period corresponding to the implementation of the new laws. The six were chosen because they had more debate on anti-ESG bills and governance on ESG issues.

The Warton study found that Texas paid higher interest rates because of less competition after major banks were forced out of the state. Similarly, the Econsult study found that interest costs could skyrocket for the six states if they underwent Texas-style changes that would affect municipal bonds in addition to state actions.

• In Florida, costs would range from $97 million to $361 million.
• In Kentucky, the cost would be between $26 million and $70 million.
• For Louisiana, the cost would fall between $51 million and $131 million.
• In West Virginia, interest costs would range from $9 million to $29 million.
• In Missouri, taxpayers would see interest rates rise from $32 to $68 million.
• Oklahoma would have $49 million in additional costs.

That’s a burden on every taxpayer, every teacher, every elderly citizen in those states, Rothstein said. Of course, nobody gets anything out of that. It’s just higher interest costs, and that’s because fewer bankers can bid for that work. That’s one of the risks. Moreover, they will not take climate risks into account.

Rothstein added that after the pandemic reminded people how interconnected the supply chain is, it would be unwise to exclude consideration of climate risks alongside other ESG factors, and that ESG factors are just one of many considerations make investors. .

Kentucky and West Virginia have now passed bills prohibiting various state agencies and councils from doing business with financial institutions that boycott fossil fuels, though they do not refer to municipal bonds nor are they as broad as Texas law.

In Missouri, Sen. Mike Moon, R-Ash Grove, has already filed an anti-ESG legislation this session, similar to a bill he introduced last year that banned government agencies from contracting with companies that used ESG scores. It’s one of those three Senate bills aimed at what state officials have called waking investments. Last year, the states then drew Treasurer, Scott Fitzpatrick $500 million in pension funds from BlackRock, the world’s largest asset manager, and said the company had shown it would prioritize promoting a waking political agenda over clients.

Michael Berg, political director of the Sierra Club’s Missouri chapter, told the States Newsroom that he sees these efforts as a way for the fossil fuel industry to buy time and hinder progress in the fight against climate change.

This is a nationally organized campaign pushed by Republican Party politicians and conservative dark money groups controlled by billionaires and fossil fuel interests, he said. Berg pointed to the influence of the State Financial Officers Foundation, a Kansas nonprofit that has been influential in policy pressures on ESG.

According to a New York Times investigation, the group coordinated with the Heartland Institute, Heritage Foundation and American Petroleum Institute to push anti-ESG policy approaches since January 2021.

They (legislators) say they don’t like BlackRock looking at anything other than immediate returns, but we need to see whether or not they are costing Missouri retirees because of political decisions under the guise of opposing political decisions, Berg said.