States that restrict business with banks that ‘boycott’ fossil fuels could pay high costs, study says • Missouri Independent

Efforts by Republican state policymakers to boost fossil fuels by banning their governments from doing business with companies that consider sustainability could cost states millions, according to a study released Thursday.

The researchers looked specifically at the possible effects on Florida, Kentucky, Louisiana, Missouri, Oklahoma and West Virginia if they passed laws similar to Texas’s limiting investment options in municipal bonds and found that it could cost them between $264 million and $708 million in additional interest. The study noted that states have not enacted such broad laws.

Those six states are among about two dozen states that last year issued proposed or enacted laws prohibiting state entities from doing business with financial firms that take environmental, social and corporate governance (ESG) into account in investment decisions amid anti-ESG efforts spread from state treasurers and attorneys general to governors and legislators. Republican policymakers call ESG a “boycott” of energy companies and argue that mutual funds are pursuing a liberal agenda that hurts jobs.

The study, conducted 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 the costs to Texas after anti-ESG laws take effect there in 2021, restricting business with banks that have anti-fossil fuel and anti-firearm policies.

Steven Rothstein, director of the Ceres Accelerator, calls anti-ESG legislation and changes to state pension funds “short-sighted” and “political.” He claims that these approaches will only hurt taxpayers.

“In the long term, we are concerned that these taxpayers and pension holders will actually be harmed with higher risk and low return,” he said.

Since Texas led the way as the first state to pass anti-ESG laws, the study authors assumed the adoption of similar laws and the same bond market restrictions in the six states they chose to examine. 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 selected because they had more discussion on anti-ESG bills and administrative actions related to ESG issues.

A Wharton study found that Texas paid higher interest rates because of less competition after big banks were forced out of the state. Similarly, Econsult’s study found that interest costs for its six states could rise if they underwent Texas-like changes that affected municipal bonds in addition to state actions.

  • In Florida, costs would range from $97 million to $361 million.
  • In Kentucky, the costs 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 be $9 million to $29 million.
  • In Missouri, taxpayers would see an increase in interest payments of $32 million to $68 million.
  • Oklahoma would have $49 million in additional costs.

“It’s a burden on every taxpayer — every teacher, every senior citizen in those states,” Rothstein said. “That obviously doesn’t help anyone. It’s just higher interest costs, and that’s because fewer bankers can bid on the business. That is one of the risks. In addition, they will also not take climate risk into account.”

Rothstein added that after the pandemic reminded people how interconnected the supply chain is, it wouldn’t be a good idea to exclude consideration of climate risk, along with other ESG factors, and that ESG factors are just one set of investor considerations among many.

Kentucky and West Virginia have now passed laws prohibiting various government agencies and boards from doing business with financial institutions that “boycott” fossil fuels, although they neither refer to municipal bonds nor are they as broad as the Texas legislation.

In Missouri, state Sen. Mike Moon, R-Ash Grove, has already filed anti-ESG legislation this session, similar to a bill he filed last year that would have prohibited “public entities” from contracting with companies that used “ESG scoring”. It is one of three Senate bills targeting what state officials have labeled “reawakened” investments. Last year, the then-treasurer, Scott Fitzpatrick, pulled $500 million in pension funds from BlackRock, the world’s largest asset manager, saying the firm had shown it would “prioritize advancing an awakened political agenda” over clients.

Michael Berg, political director of the Missouri chapter of the Sierra Club, told States Newsroom that he sees the effort as a way for the fossil fuel industry to “buy time” and stand in the way of any progress on addressing climate change.

“This is a national 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 the political push against ESG.

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

“They (legislators) say they don’t like BlackRock looking at anything but immediate returns, but we have to see if they’re actually costing Missouri retirees because of policy decisions under the guise of conflicting policy decisions,” Berg said.

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