BUCKING CHANGE
Texas among fossil-fuel states challenging sustainable investing.
Climate and shareholder activists are leading a growing movement for investors to put their money only in companies with sustainable business practices, a standard that considers how a company is run, the working conditions in its supply chain and its effect on climate change.
But lawmakers in some energy-producing states are not only pushing back, they’re proposing the exact opposite.
In Texas, Alaska, North Dakota and other energy-producing states where fossil fuel taxes support state budgets, some lawmakers are introducing legislation that would force states to stop investing in companies that use sustainable strategies to make financial decisions and to cut ties with asset managers, banks and insurers that are doing the same.
The lawmakers, mostly Republicans, argue that investment decisions should be made solely based on the likely financial returns, not so-called ESG — the environmental, social and governance criteria that socially conscious investors use. Instead of embracing ESG, several states want to double down on investments in oil, gas and coal. Otherwise, they say, the very industries they depend on face collapse.
It’s already difficult for fossil fuel projects to find insurance, financing and other backing if they don’t meet some of the sustainability standards, said state Sen. Jessica Bell, a Republican in North Dakota who has sponsored one of the bills that would keep her state from making ESG-driven investments.
“They’re denied access to capital. They are denied access to loans. They are refusing to do business with them. Our insurance rates have gone up,” Bell said. “I mean, you name it, ESG has already negatively affected us.”
But bills such as the one in North Dakota defy global financial and political trends. Some of the world’s biggest investors have embraced divestment from fossil fuels and have pressed large companies to disclose their future risk exposure to the effects of climate change. As more state, local and national governments establish greenhouse gas emission targets, they are demanding corporations meet their new regulatory requirements.
To do so, many companies are committing to net-zero targets that seek to balance their greenhouse gas emissions with those taken out of the atmosphere.
But in states dependent on fossil fuels, leaders fear the ESG movement threatens the existence of industries that provide jobs and tax revenue.
In Alaska, Republican Gov. Mike Dunleavy supports legislation that would cut the state’s ties to banks that refuse to support oil and gas exploration and drilling in the Arctic.
North Dakota is at a similar crossroads: 53 percent of the state’s tax revenue comes from taxes on oil production. Bell’s legislation would keep the state investment board from putting money into ESG-driven funds unless those investments have an equivalent or equal rate of return.
The legislation passed the state Senate and will next be voted on in the House. It has support from oil and coal trade groups in North Dakota, which said the state’s nearly $8 billion Legacy Fund — seeded with oil and gas production and extraction taxes — shouldn’t be spent on investments that threaten the industry that created it.
The proposed law in North Dakota is based on model legislation developed by Jason Isaac, a former Republican state representative in Texas. Isaac said he got the idea for the model legislation from a 2017 bill that banned Texas from investing in funds that boycott, divest from or sanction Israel.
The foundation is pushing for similar legislation in Alaska, Indiana, Kentucky, Pennsylvania, Oklahoma and West Virginia. The bill in Texas goes even further than the North Dakota version. It would explicitly prohibit the state as well as local governments from doing business with any companies that divest from fossil fuels.
“These are just awful, awful policies, and we are pushing back,” Isaac said.
North Dakota state Sen. Merrill Piepkorn was one of only four lawmakers to vote against Bell’s bill in the Senate.
“My fear is that we are just digging our heels in the ground, content to live in the past, and the rest of the world is passing us by,” said Piepkorn, a Democrat.
James Leiman, the new commissioner of the North Dakota Department of Commerce, said his department is neutral on the legislation. But he did tell North Dakota’s Senate Energy and Natural Resources Committee that the ESG movement represents “the greatest challenge to the North Dakota economy since the Great Depression.”
But North Dakota also can learn to use the fervor for sustainable investment to its advantage, Lieman said. The Department of Commerce plans to spend $250,000 to study how it can help existing businesses within the state manage ESG compliance, the commissioner said.
Consumers also crave sustainable investments, said Andrew Behar, the CEO of As You Sow, a shareholder advocacy group that pushes for environmental and social corporate responsibility. A report this year by the sustainable investment division of Morgan Stanley bank found that in 2020, funds that focused on environmental, social and governance factors weathered the year better than the portfolios that did not.
“It makes sense, because why would you want to be invested in your own destruction?” Behar said. “They don’t want to be invested in climate destruction.”
Texas among places seeing legislation to force officials to avoid companies tied to socially conscious criteria