West Virginia senators have advanced a bill that would allow for restricting state banking contracts with financial institutions that boycott energy companies.
The Senate Energy, Industry and Mining Committee signed off on Senate Bill 262 at its meeting Tuesday afternoon after state Treasurer Riley Moore contended that the bill would be a powerful tool to defend the state’s fossil fuel industries.
Moore, a Republican, dismissed some senators’ concerns that the legislation picks “winners and losers” in private markets and risks driving some banks out of the state.
Tuesday’s advancement of SB 262 comes a day after Moore announced the Board of Treasury Investments would no longer use a BlackRock Inc. investment fund as part of its banking transactions after the New York-based asset manager urged companies to embrace investment strategies that assess climate risk as climate change worsens.
But BlackRock held coal industry investments totaling $84.3 billion as of last year, per a report from German environmental and human rights organization Urgewald and other environmental groups.
And on Monday, BlackRock published a letter from chairman and CEO Larry Fink to CEOs of companies that BlackRock clients are invested in noting that BlackRock does not pursue divestment from oil and gas companies as a policy.
“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” Fink wrote.
SB 262 would allow the state treasurer to refuse to enter into or remain in banking contracts with financial institutions that take any action “intended to penalize, inflict economic harm on, or limit commercial relations with a company” because the company sells engages in fossil fuel-based energy activity.
The Energy, Industry and Mining panel referred the bill to the Senate Finance Committee.
The bill would require the treasurer to post a list of restricted financial institutions on the treasurer’s website and update it annually or more often if the treasurer considers it necessary.
SB 262 would allow the treasurer to disqualify restricted financial institutions from the competitive bidding process. It would also require the treasurer to remove a restricted financial institution that “provides information demonstrating, to the Treasurer’s satisfaction, that it is not engaged in a boycott of energy companies.”
Moore said the legislation would guard against banks not lending to coal companies that need capital to finance their operations.
Moore reported that he anticipates SB 262 would affect two of roughly 30 financial institutions where the state has deposits.
In an exchange with Sen. Michael J. Romano, D-Harrison, Moore denied that the bill would drive banks out of West Virginia and leave the state only with smaller, local banks.
“If you’re one of the banks on that list, certainly it’s bad publicity for depositors in West Virginia,” Romano said. “I don’t see any other possibility than that [that] will push those banks away.”
“They’re denying access to capital to our industries currently,” Moore replied.
West Virginia Coal Association President Chris Hamilton said Tuesday that Bank of America, BlackRock, Citigroup and J.P. Morgan had denied financing to members of the trade association.
Hamilton said in an email that the bill is “about defending our state’s bedrock industries.”
“This is very insightful and progressive legislation,” Hamilton said.
BlackRock spokesman Ed Sweeney said in an email Tuesday that BlackRock is a “strong supporter of West Virginia and its economy.”
The Treasurer’s Office did not respond to requests for comment.
BlackRock has invested about $1 billion in bonds issued by companies and state and local government entities based in West Virginia, Sweeney said.
BlackRock has invested another $500 million in publicly traded companies based in West Virginia, Sweeney added.
Sen. Eric Nelson, R-Kanawha, a member of WesBanco’s board of directors, questioned whether the bill could have unintended fiscal consequences.
“Would you agree that such a policy that we’re contemplating here has the potential to raise the cost to the state of West Virginia as well as maybe reduce the returns that we would have on your managed cash?” Nelson asked Moore.
Moore responded that the state wouldn’t “cut off” a financial institution until another institution went through a request-for-proposal process.
Sen. Owens Brown, D-Ohio, suggested in a question posed to Moore that the bill would present the state “slippery slope” toward choosing “winners and losers.”
“Isn’t this government interference into the private sector, what you’re doing?” Brown asked.
“As the state treasurer, I’m not a market regulator, I’m a market participant,” Moore replied. “And as a participant in the market, what I’m doing is stating my preferences in the marketplace.”
The legislation comes amid the rise of environmental, social and governance, or ESG, investing, an investing approach that prioritizes investments that consider the environmental and social impacts of an investment’s financial returns.
As climate change consciousness has grown in recent years, so has investor and public demand for ESG programs, prompting companies to release ESG metrics.
U.S.-based banks in the United Nations-convened, industry-led Net-Zero Banking Alliance committed to net-zero carbon emissions by 2050 include Bank of America, JPMorgan Chase, Citigroup, Morgan Stanley and Wells Fargo.
But an analysis by Bloomberg published in October found that banks had organized $459 billion of bonds and loans for the oil, and gas and coal sectors last year — just $4 billion less than bonds and loans for green projects.
West Virginia’s Board of Treasury Investments has acknowledged the rise of ESG, adding it to its strategic plan in fiscal year 2019 under previous Treasurer John D. Perdue.
“ESG investing has come to the forefront for many fixed income funds and state investment pools,” the board’s strategic plan for fiscal years 2021-24 states. “The BTI will work closely with its consultant to evaluate the BTI’s investment pools and its incorporation of ESG.”
The plan called for assigning an ESG rating to each of the board’s investment pools passed upon an investment consultant’s rating scale and determining whether changes needed to be incorporated into state investment policy regarding ESG.
Board of Treasury Investments Executive Director Kara Hughes said in November that the board does not use ESG to prohibit investment in any industry and evaluates ESG through a formal review of its investment managers.
Moore announced that month that he had formed a 15-state coalition of state financial officers committing to potentially curtail future business with banks that adopt corporate policies to cut off financing for fossil fuel industries, representing more than $600 billion in public assets.
SB 262’s lead sponsor is Sen. Rupie Phillips, R-Logan. The bill is also backed by six other Republican sponsors.
“My conclusion is that Treasurer Riley and the sponsors of that bill are ignoring the on-going trends of bankruptcies in the fossil fuel industry,” Jim Kotcon, conservation chair of the Sierra Club’s West Virginia chapter, said in an email. “They need to refocus on their fiduciary responsibility. Wishing that the coal industry is coming back will not overturn the obvious market forces telling us that few if any coal companies will have a profitable future, and investing state dollars in those is bad business.”