The wagons are circling around anti-environmental, social, and governance laws enacted in Texas and Oklahoma amid a flurry of studies on their financial impact and congressional scrutiny.
The two states were early enactors of laws that led to the blacklisting of more than 20 financial firms, including municipal bond underwriters, for "boycotting" or "discriminating" against the fossil fuel or firearm industries. The laws call for divestment of public pension and other assets and prohibit governmental contracts worth $100,000 or more with banned firms.
The passage of a wide-variety of anti-ESG bills slowed dramatically this year with Pleiades Strategy, a research and advisory firm,
Studies pointing to adverse financial and economic impacts from the Texas and Oklahoma laws are piling up, attracting attention from Democratic members of the U.S. House Judiciary Committee who requested information on their financial effects.
"A growing body of evidence demonstrates that these policies threaten public employees' retirement savings and leave taxpayers on the hook for higher fees and increased borrowing costs," Reps. Jerrold Nadler, D-N.Y., and J. Luis Correa, D-Calif., said in a May 20 letter to Texas officials.
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Texas Comptroller Glenn Hegar called the studies "erroneous and fundamentally flawed" in his June 7 response to the federal lawmakers, which also highlighted the more than $9 billion in oil and natural gas production tax revenue that flowed into the state's coffers in fiscal 2023.
"Because there is a myriad of factors that affect these (issuance and borrowing) costs, including the size, type, credit quality, liquidity and structure of each municipal bond transaction, not to mention general economic conditions such as a significantly higher interest rate environment, it is impossible to accurately conclude that any transitory adjustments or disruptions on the municipal bond market in Texas are solely or even partially attributable to the change in statute," he wrote.
Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago's Harris School of Public Policy, said while it's good to see some evidence on actual financial impacts making its way into the debate over anti-ESG state laws, more and better data is required.
"We need more updated data to not necessarily prove the point, I think the Wharton study and others do a pretty good job of showing that there was an impact," he said. "The question is whether the negative financial impacts for borrowers in the state have sustained — whether that's been an ongoing phenomenon or whether it was just a more immediate response to the passage of that law in Texas and Oklahoma and elsewhere."
The Texas-based American Energy Institute pointed to faulty findings in the March Texas Association of Business study conducted by Austin-based economic analysis and public policy consulting firm TXP, Inc., using Texas Bond Review Board data for 2023 and 2022 that was restated by the board in May.
"When corrected data from the Texas Bond Review Board was applied, it showed that the costs of bond issuance in 2022 and 2023 remained consistent with historical averages, debunking the report's claims," an
The Texas Association of Business said a note was added to the study to clarify the analysis was based on the bond review board's original annual report.
"This does not change the fact that a tightening of the competitive bond market in Texas limits local governments' access to financing for taxpayer-approved bonds, which ultimately results in more debt shouldered by taxpayers and Texas businesses, as multiple other economic analyses have similarly shown," it said in a statement.
Bond issuers in Texas have said the laws' reach
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The study, conducted by the University of Central Oklahoma's Economics Department and released by the Oklahoma Rural Association in April, has methodological flaws that included cherry-picked data and comparisons,
"It's clear that the Energy Discrimination Elimination Act of 2022 is crucial for safeguarding Oklahoma's economic interests and ensuring sound fiduciary practices," Institute CEO Jason Isaac said in a statement. "Our research debunks the flawed claims against the (act), highlighting its role in protecting vital energy sectors and promoting financial stability for the state."
Using the average yield to worst real-time measure of market borrowing rates for the S&P Municipal Bond Oklahoma Index since 2022, Paul Tice, a senior fellow at think tank National Center for Energy Analytics, reported that average yield measurement for issuers in the state tightened by 14 basis points since Oct. 31, 2022.
"Almost all of the yield volatility over the past 19 months has been driven by movements in underlying interest rates as seen by the lockstep trading between Oklahoma and its municipal peers and the U.S. Treasury Bond Index," he wrote
There are additional studies, including one released in April by Texas-based
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Oklahoma Treasurer Todd Russ, who has blacklisted seven companies, including Barclays, Bank of America, JP Morgan, and Wells Fargo,
"This practice can have severe consequences for Oklahoma industries, limiting their access to capital and financial services," he said in a June 28 statement. "By resisting policies that lead to de-banking, Oklahoma can safeguard its key industries from financial exclusion and ensure that businesses have the necessary resources to thrive."
Enforcement of the Energy Discrimination Elimination Act was
The pro-ESG movement is fighting back.
Unlocking America's Future, a nonprofit advocacy group that works to counter attacks against ESG,
As part of its 2024-25
The group adopted a policy in July urging "Congress and the administration to support policies that provide for local governments' ability to invest and borrow as they self-determine, which must include continued access to free capital and credit markets."
