The financial impact of anti-environmental, social, and governance (ESG) laws on municipal borrowing costs has been a topic of recent research and analysis. A study conducted by the Oklahoma Rural Association reveals the consequences of a law that banned state and local government contracts with investment banks that “boycott” the fossil fuel industry. This article will delve into the findings of the study and discuss the implications for municipalities in Oklahoma.
The research conducted by Travis Roach, chair of the University of Central Oklahoma’s Economics Department, found that the anti-ESG law in Oklahoma resulted in a 59 basis point increase in municipalities’ borrowing costs on average. Over a period of approximately 17 months, about $4.6 billion of municipal bonds were issued at higher coupon rates compared to states without a similar law. This led to an estimated $184.7 million in additional expenses for Oklahoma municipalities. The study concluded that the increase in borrowing costs could impose a financial burden on municipalities, potentially impacting public services and infrastructure projects.
The law prohibiting investment banks that boycott the fossil fuel industry from underwriting government debt in Oklahoma has had significant consequences. Large financial institutions such as Bank of America, JP Morgan, and Wells Fargo were included on the list of “boycotters,” leading to higher borrowing costs for municipalities. This has forced smaller firms without the same reach and experience to handle underwriting services, resulting in increased costs for issuers.
In response to the unintended consequences of the anti-ESG law, lawmakers are considering amendments to the legislation. Senate Bill 1510, which passed the Senate with overwhelming support, aims to remove local governments and school districts from the law’s provisions. Another bill seeks to limit the application of the law to state agencies with contracts worth $100,000 or more, while expanding the industries protected from boycotts. These legislative changes reflect a reconsideration of the law’s impact on municipal borrowing costs.
Similar laws in other states, such as Texas, have also had ramifications for municipal borrowing costs. Research indicates that laws protecting the fossil fuel and firearm industries against boycotts may lead to increased borrowing costs due to reduced competition among underwriters. States like Oklahoma could face additional interest costs if similar legislation is enacted. The findings highlight the need to carefully consider the implications of anti-ESG laws on municipal finances.
The financial impact of anti-ESG laws on municipal borrowing costs is a complex issue that requires careful consideration. The study conducted in Oklahoma sheds light on the consequences of legislation aimed at restricting investment banks that boycott certain industries. As lawmakers evaluate potential amendments to the law, it is crucial to weigh the effects on municipalities and the broader financial landscape. By addressing the challenges posed by anti-ESG laws, policymakers can strive to promote financial stability and sustainable economic growth.