United States | Several states prohibit climate-friendly investing by law – the situation is exacerbated in Texas

in Europe it now seems that all new investment legislation is moving consistently in one direction: climate and nature must be taken into account more closely than before.

In the European Union, sustainable investment criteria, green bonds and the expansion of emissions trading are being pushed through.

It is different in the United States.

On the other side of the Atlantic, laws attacking so-called ESG investing have at least been enacted in 14 states. Especially in Texas, the situation is escalating.

ESG refers to words environment, social and governance i.e. the environment, social responsibility and good governance. In the ESG boom that accelerated in the 2020s, asset managers create investment products that promise investors a better conscience and far-sighted investments that take into account the changing world.

In addition to legislation and consumer pressure, directing money to ESG projects is one factor that increases companies’ desire to avoid spoiling the environment.

For more than a year, however, the counter-movement of the ESG boom has been raging in the Republican states of the United States. Its most recent example takes place in Texas. In October, the state attorney general, a Republican Ken Paxton scolded the country’s biggest banks for “boycotting oil and gas companies” and said he had ordered an investigation into the matter.

The basis of the investigation is that the banks belong to the Financial Alliance for net zero, which was established at the Glasgow Climate Summit to the merger. The banks that belong to it are committed to supporting the transition, where they try to make the world carbon neutral by 2050.

Carbon neutrality means that humanity would not release more climate-warming greenhouse gas emissions into the atmosphere than it commits to various carbon sinks such as growing forests. Achieving it is necessary if the continuous warming of the climate is to be stopped.

of Texas the attorney general’s accusation is based on the “boycott law” enacted in the state in 2021. After Texas, many other Republican-led states have passed similar laws. In total, more than 160 laws against ESG thinking have been proposed in 37 states.

Only a small proportion has passed, but still anti-ESG laws are now in force in at least 14 states. Alabama, Arkansas, Utah, Idaho, West Virginia, and Oklahoma have similar “boycott” laws to those in Texas.

They interpret that considering the environment or social responsibility in investment decisions is an unfair boycott of less responsible companies.

In addition, many states such as Florida have enacted laws prohibiting “non-money-based” (non-pecuniary) discretion in the state’s use of money. The idea is that any non-monetary basis is ideological and therefore anti-capitalist.

According to critics, “non-money-based” is a very unclear term and puts decision-makers in a difficult position if they suddenly cannot take all information into account in decision-making.

The battle has also begun at the federal level. The House of Representatives has a Republican majority, and many committees have already voted on bills to restrict green investment. In the education committee, for example, support was given to a law that would limit the ability of investment advisors to tell pension investors about responsible investing.

If the United States were to elect a Republican president and a Republican-majority Senate next, laws like this would probably begin to see their way through to legislation.

Republican politicians pushing anti-ESG laws often justify their efforts as part of a broader fight against “woke culture”. Woke is a term used to refer to an awareness of, for example, the rights of minorities.

However, conservatives on both sides of the Atlantic have begun to use the word woke in a derisive sense to denote an overshooting liberal “wokeness” that threatens the voters’ traditional lifestyles.

With laws there have already been consequences.

The Swiss financial and banking company UBS was subsequently excluded from lending to a school district in Texas, after the state’s tax administration had added UBS to the list of companies boycotting fossil fuel companies. More than $800,000 in compensation came out.

This is done even though limiting the number of banks that offer loans to public entities will be expensive for taxpayers in the form of higher interest costs.

Even in the current dispute, Texas is shooting hard: for example, the big banks JP Morgan Chase, Bank of America and Morgan Stanley could lose their access to the Texas public bond market, according to the state attorney general, Ken Paxton, if they do not stop using the climate as an investment basis.

You can also get banned if you “discriminate” against Israel or the arms industry. Paxton, a Republican, wrote in a public letter in October that state attorneys general will “tirelessly” enforce Texas laws to prevent taxpayer dollars from going to companies whose ESG practices “harm Texans or Texas industry,” the news outlet reported Bloomberg.

“Companies that discriminate against the arms industry and organizations, the oil and gas industry, or the State of Israel cannot enjoy the opportunity to win public tenders in Texas,” the prosecutor’s letter continued.

Chairman of the board and CEO of Chase, the big bank JP Morgan Jamie Dimon don’t understand Texas logic. He told Bloomberg that the state, which was considered pro-business, now risks damaging its reputation.

“We don’t discriminate or boycott anybody, not because of political position or anything else,” Dimon told Bloomberg.

“Instead, we make decisions based on risk, laws, credit and reputation. It is our legal right and also my duty.”

American the leading expert of the activist investor organization As you sow by Danielle Fugeres according to the Republican states’ ESG rebellion is a hot topic of discussion in US investor circles and a significant obstacle to the spread of environmentally friendly investing.

Fugeres leads As you sow’s climate work. The organization tries to get listed companies to minimize their climate footprint by means of votes at general meetings and gathering owner allies. As you sow has influenced the decision making of oil giants such as Exxon Mobil and Chevron.

For Fugeres, it is distasteful that laws against ESG are justified by the defense of a free market economy.

“They practically require you to invest in outdated and destructive technology,” Fugeres tells HS.

“They [republikaanipoliitikot] argue that the company endangers the interests of investors if it takes climate risk into account.”

However, Fugeres believes that companies should have full freedom to analyze the market and the future according to the best available information.