Texas stumbles in efforts to punish green financial firms 2022-04-29 04:01:00


For years, fossil fuel-producing nations have watched investors turn away from companies causing the climate crisis. Last year, one country decided to back off.

Texas has passed a law that treats financial companies while avoiding fossil fuels the same way it treats companies that do business with Iran or Sudan: boycott them.

“This bill sent a strong message to both Washington and Wall Street that if you boycott Texas Energy, Texas will boycott you,” Texas Representative Phil King of the Texas Legislature said during deliberations on the bill, SB 13, last year. .

But the Lone Star State is striving to implement Law. Loopholes and exceptions written into the law can reduce its impact on financial firms with strict climate policies.

In March, the Texas regulator began sending letters to financial institutions, checking their climate policies. Leslie Samuelrich, president of Green Century Capital Management, a fossil-fuel-free mutual fund, says her company recently got its message.

“I felt very politically motivated,” she says. Samuelrich says she plans to ignore the person she got.

Still, Samuelrich says the law could have a “scary effect” on some investment firms.

Despite the problems arising in Texas in implementing the first law that penalized companies for divesting in fossil fuels, the concept of a green finance boycott is spreading. At least seven other states are now considering or have passed similar legislation, raising the potential for a coalition of fossil fuel-producing nations to put pressure on Wall Street.

“Texas is a big state with a lot of money,” says Rob Greer, assistant professor at Texas A&M University’s Bush School of Government and Public Service. “They can certainly make some kind of difference. But when you talk about the biggest financial institutions … the global trends are going to be the ones that dictate a lot of this — and Texas is probably out of sync with some of those global trends.”

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Fossil fuels help power the Texas economy, using About 14% of Texas workers In 2019, according to the American Petroleum Institute. It also governs state policies. New Law Books Jason Isaacs, A former lawmaker whose foundation takes money from the fossil fuel industry.

The law prohibits Texas pension and investment funds from doing business with companies that the state’s comptroller says “boycott” fossil fuels. The funds are worth about $330 billion, although it’s not clear how much is being invested in the companies Texas plans to boycott. The law applies to new or existing contracts worth more than $100,000.

Texas applies the term “county” liberally. Because of how the law is written, even companies that invest their customers’ money in fossil fuels but also offer financial products that are free of fossil fuels can be considered boycotts.

Vehicles drive along Congress Avenue that leads to the Texas Capitol building in Austin.  Last August, Texas hired MSCI, a financial rating firm that analyzes green investments, to help it draw up a list of companies to boycott, public records obtained by Floodlight show.

Joe Riddell / Getty Images


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Vehicles drive along Congress Avenue that leads to the Texas Capitol building in Austin. Last August, Texas hired MSCI, a financial rating firm that analyzes green investments, to help it draw up a list of companies to boycott, public records obtained by Floodlight show.

Since Texas passed the bill, at least seven other states have considered or passed similar legislation. Last fall, a coalition of 15 Republican-led state treasurers publish a letter Saying they would stop banking with financial institutions involved in a “boycott” of fossil fuels.

But if government boycotts are spreading, so is the popularity of green investing. In 2014, about $52 billion of fossil fuels were stripped worldwide, according to Global Database on Fossil Fuel Divestment. By 2022, that figure was $40.43 trillion.

Experts doubt the chances of success of the Texas law. They point out that there are loopholes in the legislation. They say the climate risks to the financial system are so huge that there is no real way to stop financial firms from pricing them — and making them greener in the process.

“I see this as just a next step or one of many token actions,” says David Spence, professor of law at the University of Texas, Austin.

New documents obtained by the Investigative Task Force a lamp It just reveals how much trouble the Lone Star State has been in trying to figure out who to stop working with.

The controller’s dilemma

When the Texas legislature originally debated the fossil fuel boycott bill, representatives from the State Comptroller’s Office pointed to an obvious problem: No one had ever come up with a list of companies like this before.

“It’s not obvious, you’re really going to have to do a lot of research,” says Sherry Greenberg, a former Texas Democratic legislator who used to help oversee pension fund investments.

Texas is now learning how difficult it is to determine which financial companies are really green. There are no national standards for companies to report greenhouse gas emissions.

A spokesman for the Comptroller’s Office said the process “has proven to be difficult”.

With that, the US Securities and Exchange Commission announced this spring that it will begin standardizing the way financial firms must disclose risks and opportunities from climate change.

But right now, figuring out who’s actually doing climate-conscious financing is very difficult. So hard, in fact, that the new law might deceive state-appointed advisors into providing assistance.

Last fall, Texas hired MSCI Inc.And A financial ratings firm that analyzes green investments, to provide data on financial companies, showing public records obtained by Floodlight.

But there was a catch: MSCI is exactly the kind of company Texas officials are looking to boycott: it’s committed to carbon neutrality before 2040.

Flood waters cover an access road to the oil refineries in Port Arthur, Texas in the aftermath of Hurricane Rita in 2005.

Stan Honda/AFP via Getty Images


AFP via Getty Images

Flood waters cover an access road to oil refineries in Port Arthur, Texas in the aftermath of Hurricane Rita in 2005.

This is the thing that can get you in trouble right now in Texas. In the emails, a lawyer in the Comptroller’s Office expressed concern that the state might not be allowed to work with MSCI under the new law.

The lawyer’s solution was to keep the contract cheap – under the amount with which the new law begins. After email negotiations on August 26, MSCI agreed to lower its price from $100,000 to $95,000, the emails show. The contract creaked under the keel set by the new law, and he was signed.

“The simple fact is that creating this list will pose absolutely no challenge if these companies are open, transparent and honest about their position on the fossil fuel sector,” a spokesperson for the Office of the Comptroller wrote in a statement.

But the MSCI contract problem is only the first hurdle the country can expect as it tries to stem the tide of climate-conscious investment.

Gaps and cuts

Because of the way Texas defined the term “boycott” in law, financial firms that only invest in other funds that avoid fossil fuels may be in conflict with the law.

“Let’s take Wells Fargo, for example,” says Greenberg, a former superintendent of pensions. “If they have any mutual funds or exchange-traded funds in their portfolios that prevent or limit investment in fossil fuels, that is a problem.” But the law also contains countless cuts. For example, companies that want to do business with Texas can still avoid investing in fossil fuels as long as they do so for purely financial and not ethical or environmental reasons.

“It’s smart business not to invest in fossils,” says Robert Schwerk, executive director of the North America office of Carbon Tracker, a financial think tank that studies the green energy transition.

Schwerk explains that if a company believes that its fossil fuel assets will be less valuable in the future due to things like carbon taxes, or more powerful natural disasters from climate change, it makes sense that the company would sell those assets now. .

The Texas Comptroller’s Office has not commented on the impact of the exceptions in the law. A spokesperson for the office directed questions about these exceptions to the legislature.

“We don’t know the impact that this will have on companies’ behavior and we don’t want to speculate on how companies will respond,” the spokesperson says.

Other states that have passed similar laws argue that allowing some exceptions will not dampen the effort.

“If they’re making a business decision, somebody comes in for a loan to a coal company, and they decide it’s too much credit risk, and they don’t want to do it, that’s fine,” says West Virginia treasurer Riley Moore.

Moore says he sees the law as directly applicable to corporate public statements.

“(If) they said we, as a financial institution, wouldn’t lend money to coal, for example. That’s a blanket statement that’s a problem for West Virginia,” Moore says.

Samuelrich, a mutual fund manager, says that for her company, listing it as a boycotted entity may not be a bad thing.

“I don’t think this will affect demand at all,” she says. “In fact, it may motivate more people to realize that they can invest without fossil fuels.”

This story is a collaboration with a lampAnd A non-profit environmental news organization.

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