As the window closes for banks to prove they are in compliance with West Virginia’s new rules prohibiting the state from doing business with financial institutions “boycotting” fossil fuels, a new study examining the impacts of a similar Texas law may give insights to West Virginia’s financial future.
First, some background: The West Virginia Legislature passed SB 262 in March and it became effective in June. The law directed the state treasurer to compile a list of financial institutions that “boycott” (decline to finance in or steer investors away from) the fossil fuel industry and deliver them a warning. If those banks cannot satisfactorily prove they don’t boycott fossil fuels — or if they decline to sign a statement saying they won’t — the state will refuse to invest with them and disqualify them from bidding on state projects.
Notices went out to six banks in June — BlackRock Inc., Wells Fargo & Co., JP Morgan Chase & Co., Morgan Stanley, The Goldman Sachs Group Inc. and U.S. Bancorp — that they would be placed on Treasurer Riley Moore’s “restricted institutions” list. Five of the banks responded that they do, in fact, invest in fossil fuels. (Moore had already pulled state funds from BlackRock in January because of its “net zero” investment strategy.)
Morgan Stanley responded by sending Moore a copy of Rainforest Action Network’s “Banking on Climate Chaos,” a report listing the top financial institutions financing fossil fuels and thereby climate change. Morgan Stanley made the list for financing natural gas; JP Morgan Chase, Wells Fargo and Goldman Sachs each made the list.
Wells Fargo pointed out that other banks with similar positions to Wells Fargo’s did not make Moore’s hit list. (And really, of all the good reasons to stop doing business with Wells Fargo, why is this the line in the sand?)
What Moore and the Legislature fail to realize is this petty decision to boycott banks they perceive as boycotting fossil fuels will hurt West Virginia far more than it will hurt any of the “restricted institutions.”
The treasurer’s office handles about $18 billion in state receipts annually. Just as a few examples, BlackRock’s net worth is almost $70 billion; Wells Fargo’s is $306 billion; and JP Morgan Chase’s is $336 billion. They won’t miss West Virginia’s business.
Texas passed an identical fossil fuel boycott bill, but before that, it passed into law a prohibition against investing with banks that refused to fund firearm manufacturers. Just from that law, Texas lost the business of five major banks that chose to stand by their pledges, including JP Morgan and Goldman Sachs.
The result? Texas taxpayers paid an extra $300 million to $500 million in increased interest rates on funds borrowed for state and municipal projects in eight months after the law took effect. The study, written by a finance professor at the University of Pennsylvania and a member of the Federal Reserve System’s board of governors, estimates Texas will pay an average $445 million more in interest rates annually going forward.
What happened? By kicking out five major banks — which tended to underwrite the state’s largest loans — Texas decreased competition for loan bids. The remaining financial institutions were smaller, so now one large project had to be financed with smaller loans or bonds from more banks with each gaining its own interest. Plus, the remaining banks now had the room to demand higher interest rates.
We shudder to think what Texas will pay in interest once it implements its “fossil fuel boycott” ban as well.
Right now, Treasurer Moore is willing to cut off the state’s nose to spite its face, so to speak. He and the Legislature are happy to waste taxpayer dollars in pursuit of political posturing, but everyday West Virginians will suffer when their communities get far less bang for their buck.