The Washington Post

Conservati­ve battle against ‘woke’ banks is backfiring

States and cities push back against blacklisti­ng of financial institutio­ns


Conservati­ves have long held that the government should avoid interferin­g with private business decisions. But over the past two years, Republican state treasurers and attorneys general in Texas, Florida and other states have sought to blacklist banks that factor climate risks and social concerns into their investment decisions.

Now the backlash is coming. In Republican stronghold­s such as North Dakota, Indiana, Mississipp­i and Kentucky, state lawmakers have recently defeated proposals that would prohibit state government­s or pension funds from doing business with the big financial institutio­ns that have adopted ESG — environmen­tal, social and governance — goals and policies.

In North Dakota a pair of proposed laws went to crushing defeats, with one losing by a 90-3 margin on Feb. 1. They were shot down, in part, by arguments that these proposals contradict­ed conservati­ve principles.

“Our biggest concern is the idea of somebody telling our banks who to do business with or who not to do business with,” Rick Clayburgh, chief executive of the North Dakota Bankers Associatio­n, said after beating back those proposals. “We believe our banks should be allowed to do business with customers they know, the people they know and to make those decisions.”

North Dakota lawmakers may still approve less strident versions of the legislatio­n, but those would simply put into law current practices, such as avoiding social investing, according to testimony from the state’s retirement and investment board director.

Across the country, the battle rages over sustainabl­e investing, with more than $500 billion pouring into climate and socially conscious investment­s in 2021, according to Jpmorgan Chase.

Conservati­ve groups have sought to use public pension plans and state and local bond offerings to freeze out selected financial institutio­ns. Those groups say they are simply trying to counter the injection of “woke” values into Wall Street investment decisions.

But big banks and asset managers supportive of ESG — including Blackrock, Jpmorgan Chase, Citigroup and State Street — say their strategies are being mischaract­erized amid the larger culture wars of the day. They say it makes financial sense to factor climate risks and other societal concerns into investment strategies.

More and more, big and small banks are winning that argument on the state level, despite a national effort by conservati­ve dark money groups — nonprofits that don’t have to disclose their donors — to blacklist climatefri­endly businesses.

Many of these state laws were inspired by the American Legislativ­e Exchange Council (ALEC), a conservati­ve group that draws up model legislatio­n for state legislator­s. But ALEC said its board had recently withdrawn its prototype and sent it back to its energy task force “for further discussion.” The initial version, the Eliminate Economic Boycotts Act, would have required states to stop doing business with companies deemed to be “boycotting” loans or investment­s in fossil fuel or firearms industries.

“We’re starting to see rather large cracks appearing” in the anti-esg movement, said Frances Sawyer, the head of a San Francisco-based strategic planning firm called Pleiades Strategy who served as a policy adviser to former California governor Jerry Brown (D) and Tom Steyer, a climate investor and philanthro­pist. “The whole idea of blacklisti­ng institutio­ns just isn’t it when it comes to free market principles. It feels like government overreach.”

Conservati­ve groups say they are not alarmed. Will Hild, executive director of Consumers’ Research, a Washington-based organizati­on fighting ESG policies nationwide, said that his group is not “back on its heels” and said he hopes that between five and eight states pass one of his group’s bills this year. “That would be a huge year,” he said. “I’m not expecting overwhelmi­ng victory in one year.”

On Jan. 26, half the country’s state attorneys general filed a lawsuit against the Labor Department over a regulation that gives money managers greater freedom to consider environmen­tal, social and governance factors when selecting investment­s.

On Tuesday, the Republican­controlled House voted 216-204 to limit the latitude of money managers who want to factor ESG into account when investing the Labor Department’s large pensions. The effort may be moot, however, since Senate Democrats are expected to block it.

ALEC also said it is pushing forward. “State legislator­s are rightfully concerned with radicalize­d ESG,” the group said in a statement, adding that it seeks to address “politicall­y motivated investment strategies that have contribute­d to severe underfundi­ng in state pension plans across the country.”

In North Dakota, one big backer of anti-esg legislatio­n is state Rep. Bill Tveit, a Republican from Hazen who has been quoted as calling sustainabl­e governance “a worldwide human satanic organized effort.” In an interview, he acknowledg­ed the banking industry was upset by the original bill but is confident that an amended version can be enacted. He added that ESG proponents “want to control every inch of our lives while enhancing their fantasy green world.”

While conservati­ve groups have talked largely about taking on the half dozen or so biggest banks and asset managers — firms such as Jpmorgan Chase, Citigroup, Blackrock and State Street — many of the firms that would be hit include community banks.

“I believe it infringes on a private business’s right to choose who they do business with,” Lise Kruse, North Dakota’s commission­er for financial institutio­ns, said in written testimony about the initial draft legislatio­n.

The current version, which awaits state Senate action, dropped provisions that would have permitted boycotts and the blacklisti­ng of financial institutio­ns, Kruse said in an email to The Washington Post.

Opposition from the American Bankers Associatio­n (ABA) has contribute­d to the rash of setbacks. The ABA said through its Banking Journal that ALEC’S model proposal “undermined the organizati­on’s own commitment to free markets and limited government.” The ABA said that “government should not be dictating business decisions to the private sector.”

In Kentucky, the state treasurer, Allison Ball, in January drew up a list of 11 financial institutio­ns she said should not do business with the state because they were engaged in boycotts of energy companies. But in a letter to Ball, the board of the $10.8 billion Kentucky County Employees’ Retirement System said that it would not divest from firms like Blackrock because doing so “would be inconsiste­nt with our fiduciary duty.”

Retaining competitio­n is one reason state and local officials are hesitant to blacklist financial firms. Fewer competing institutio­ns can be costly to state pension funds and municipal bond managers seeking the highest returns for their money.

The Indiana Public Retirement System estimated that a bill limiting the portfolio managers could slash investment returns from 6.25 percent a year to 5.05 percent, costing state pension funds $6.7 billion over the next 10 years.

In 2021, Texas Gov. Greg Abbott signed laws that barred municipali­ties from dealing with banks that restrict funding to fossil fuel or firearms companies. That led to the abrupt exit of five of the largest bond underwrite­rs, costing the state between $300 million and $504 million, according to a paper co-authored by Daniel Garrett, a professor of finance at the University of Pennsylvan­ia’s Wharton School, and Ivan Ivanov, an economist at the Federal Reserve.

“Banks do leave the market,” Garrett said. “And Texas borrowers wind up paying a little more than they would.”

Overall, Texas state and municipali­ties raised $31.8 billion during the eight months after the exit of five of the biggest underwrite­rs and Texans ended up paying 0.14 percent more than they would have, Garrett and Ivanov said.

On the other hand, Garrett said, many Texas municipali­ties began to forge new relationsh­ips with their lenders and costs began to decline. “It’s not clear if the increased cost was a shortrun phenomenon,” he said.

As the debate continues on the financial costs of anti-esg legislatio­n, conservati­ve-leaning groups have been hopping from state to state to seek more such laws.

In mid-february, an Arizona statehouse committee heard Eric Bledsoe, a senior fellow at the Foundation for Government Accountabi­lity, testify that ESG “lines the pockets of political operatives” and that public pension funds were “not the play things of activist speculator­s.”

Bledsoe, who has championed anti-esg policies in several states, formerly worked at the U.S. Chamber of Commerce Foundation and the Charles Koch Foundation.

A month earlier, state legislator­s heard testimony from several anti-esg groups, including Reliable Energy, a public relations agency for coal interests, and Bette Grande, former chair of ALEC’S energy division and state government relations manager at the Heartland Institute, a group that has rejected the science of climate change and policies to address it.

But in mid-february, Arizona Attorney General Kris Mayes (D) said the state would no longer investigat­e financial institutio­ns’ ESG policies. “Corporatio­ns should be permitted to access capital markets in ways that they feel are necessary for the advancemen­t of their investor objectives and for society,” Mayes said.

On Feb. 13, Florida Gov. Ron Desantis (R) announced legislatio­n he said would protect Floridians from the “woke environmen­tal, social, and corporate governance movement.” Desantis, who has been harping on the dangers of woke-ism, said that “by applying arbitrary ESG financial metrics that serve no one except the companies that created them, elites are circumvent­ing the ballot box to implement a radical ideologica­l agenda.”

Desantis along with his allies, Florida’s state chief financial officer Jimmy Patronis and the state Attorney General Ashley Moody, all sit on the nearly $218 billion Florida State Board of Administra­tion.

Republican­s are divided over the role of government when it comes to ESG issues. “It’s not really a natural fit for Republican politician­s,” said Joshua A. Lichtenste­in, a lawyer and ESG specialist with the firm Ropes & Gray. He said there was a tension “between somebody traditiona­l for free markets versus someone from the anti-woke movement.”

“I think he’s absolutely right that the wokeness is really invading this culture in a very negative way,” New Hampshire Gov. Chris Sununu (R) said about Desantis in an interview on CNN. “Now, where we might disagree is: Should the government come in and fix woke? Well, the government is never useful at coming in and fixing a cultural issue.”

“Our biggest concern is the idea of somebody telling our banks who to do business with or who not to do business with.” Rick Clayburgh, chief executive of the North dakota Bankers associatio­n

 ?? Poweroffor­ever/getty Images ?? In North Dakota, a pair of proposed laws that would prohibit doing business with the big financial institutio­ns that have adopted ESG — environmen­tal, social and governance — goals and policies recently went to crushing defeats.
Poweroffor­ever/getty Images In North Dakota, a pair of proposed laws that would prohibit doing business with the big financial institutio­ns that have adopted ESG — environmen­tal, social and governance — goals and policies recently went to crushing defeats.

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