In recent years, Wall Street companies have attempted to assert their commitment to the environment and social justice. Now they sing a different tune.
Major US banks such as Goldman Sachs and JPMorgan Chase are among a group of global financial services companies that tout their business relationships with oil and gas companies. They do this to appease Republican-run state politicians who penalize them for not doing enough to support the fossil fuel industry.
So far, their pleas have fallen on deaf ears. Last month, West Virginia banned five financial firms — BlackRock, JPMorgan, Goldman Sachs, Morgan Stanley and Wells Fargo — from doing banking business in the state.
Riley Moore, West Virginia state treasurer, accused the companies of having “policies aimed at weakening our energy industries” in a state where coal and fossil fuel taxes are the third largest revenue earner.
West Virginia’s decision is the latest in a wave of attacks on financial institutions that Republican lawmakers say have gone too far in adhering to the environmental, social and governance, or ESG, agenda.
Some of the targeted lenders in West Virginia have responded by brandishing their fossil fuel financing, a jarring about-face that follows years of trying to convince climate change activists that they are not complacent. environmental screw.
In a July letter to the West Virginia Treasurer, Goldman said it had provided more than $118.9 billion in funding to fossil fuel companies since 2016, and $17.8 billion in funding last year alone. .
In a similar letter, JPMorgan general counsel Stacey Friedman touted the bank’s $42.6 billion credit exposure to oil and gas companies as proof that it did not discriminate against the regard to fossil fuel companies. Friedman also said that in 2021, the bank had funded and facilitated $106 billion for green goals, such as renewable energy.
“This decision is short-sighted and disconnected from the facts. Our business practices do not conflict with this anti-free market law,” JPMorgan said in a statement. Goldman Sachs declined to comment beyond its letter.
The restrictions in West Virginia follow two Texas laws passed last year that ban financial companies over their gun policies as well as their treatment of oil and gas companies for climate change purposes. .
Texas laws require the state comptroller to identify companies that should be banned and require companies to verify that they are not boycotting firearms, ammunition and energy companies.
A handful of companies — including JPMorgan, Citigroup, Goldman and Bank of America — pulled out of the Texas municipal bond market after the legislation took effect in September 2021, according to academic research published last month. Citi said it has since resumed underwriting Texas muni bonds.
Nearly 90 global companies have written to Texas to point out that they invest in oil and gas companies. Private equity giant Apollo said in a June letter that chief executive Marc Rowan “has publicly stated that funds managed by Apollo will continue to fund fossil fuel companies.” Sumitomo Mitsui, one of Japan’s largest banks, told the state it had funded $208 million in oil and gas projects in the United States.
The restrictions put in place by Republicans do not yet pose a significant risk to revenue, but that could change if efforts to freeze banks from state operations become widespread, analysts said.
“From an optical point of view, it’s not the headlines you want,” said Gerard Cassidy, an analyst at RBC Capital Markets, adding, “As this gains in materiality, then certainly, I think there will be more talk about it.”
Cassidy said: “The pendulum has swung so far to the left over the past five years, especially with sustainable energy [and] ESG policies. Now the pendulum swings back. . . we are not yet ready to jump into a world of sustainable energy.
The swing of this pendulum is felt, to varying degrees, across Wall Street. Last month, BlackRock said it voted for fewer environmental and social shareholder petitions this year compared to 2021. The world’s largest fund manager argued that shareholder proposals were becoming too prescriptive and that the Russia’s invasion of Ukraine had changed his calculation.
Banks will soon face another test in Florida. Last month, Republican Florida Governor Ron DeSantis said he would propose legislation next year to “protect [voters] of the ESG movement,” which he accused of “targeting disadvantaged individuals and industries to advance a woke ideological agenda.”
DeSantis, a potential 2024 presidential candidate, said he wants to ban trustees of the agency that oversees state pension funds from using fund managers who consider ESG factors. Instead, they would be required to “only consider maximizing return on investment on behalf of Florida retirees.”
The challenge with such restrictions is that there are no established definitions of ESG in the United States, said Joshua Lichtenstein, partner at law firm Ropes & Gray. “If you’re a real estate fund, you can’t ignore sea level rise when buying coastal buildings. It actually becomes a matter of investor caution,” he added.
Some West Virginia state Republicans have said they fear banning global banks over their ESG commitments will lead to higher borrowing and funding costs for outlets. Two Arizona Republicans thwarted similar legislation on such grounds earlier this year.
In July, economists estimated that Texas state and local borrowers will pay between $303 million and $532 million in additional interest on the $32 billion in municipal bonds issued after the boycott measures were introduced.
“We are seeing a massive increase in yields in these hardest hit locations in Texas,” said Daniel Garrett, a University of Pennsylvania professor and co-author of the research.