States that boycott financial firms over eco-friendly investing practices — a trend pioneered in Texas that has piqued the interest of other red states — can expect to pay a steep price for doing so, according to a new analysis.
Were Louisiana to take a page from Texas' playbook and pass legislation boycotting firms that"boycott" the oil and gas industry, for example, taxpayers would be looking at an additional $51 to $131 million in interest payments as a result of reduced competition, the study found.
In West Virginia, such a boycott would cost the state an extra $9 million to $29 million. And in Florida, it would add up to $361 million to the taxpayers' tab, according to the analysis. In Texas, of course, the question is not a hypothetical one. The state in 2021 passed legislation targeting financial firms that have embraced the burgeoning environmental, social and governance movement, which emphasizes alternatives to fossil fuels and is therefore seen, in some quarters, as"discriminating" against oil and gas.The legislation, among other things, barred Texas municipalities from doing business with such banks. This led five major underwriters — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Fidelity — to leave the state's municipal bond markets, reducing competition and raising borrowing costs. A 2022 study from economists with the University of Pennsylvania and the Federal Reserve System found that Texas cities incurred an additional $300 million to $500 million in interest on $31.8 billion in bonds issued during the first eight months after the law took effect. The new analysis was conducted by Econsult Solutions on behalf of The Sunrise Project — a nonprofit focused on climate change — and builds off the 2022 study focused on Texas. It looked at municipal bonds issued in Kentucky, Louisiana, West Virginia, Florida and Oklahoma over the past 12 months and analyzed what would have happened had those states put similar restrictions on their municipal bond markets.Those states, and others, have seen leaders propose measures similar to the Texas legislation despite the vehement objections of financial firms, most of which deny the charge that they are discriminating against the oil and gas industry, even if they are involved in the ESG movement. The issue is likely to be revisited in Texas, too, during this year's regular legislative session, which began this month. Several Republican legislators have filed measures that would put further restrictions on financial firms that do business in Texas, while state Rep. Jon Rosenthal, a Democrat who represents a northwest Harris County district, has filed legislation to repeal the 2021 legislation. The consultants, permitting themselves an editorial comment, urged legislators across the country to consider their cost-benefit analysis. "The actions represent encroachments into the marketplace by political actors that will have adverse effects on long-term public investments, including public program and state pensions," they wrote.
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