Riley Moore frames his decision to place BlackRock and four major US banks on a list of financial institutions that are restricted from business with West Virginia as a move to get back to banking basics.
Moore tells Euromoney that the banks – Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo – are mounting a concerted campaign against fossil fuel companies with their endorsement of environmental, social and governance (ESG) standards that reduce financing to firms such as the coal miners that remain active in his state.
“My goal is that they all act like banks and assess risk and capital and not take politics into consideration,” Moore says. “How in the world could they all (fossil fuel firms) have the same risk profile?” he asks.
“It seems to us to be politically motivated, and we are a fossil fuel state. This is a near-term existential threat to our tax dollars,” Moore continues. “Our goal at the end of the day is we want the free market to remain free. I’m not a market regulator, I’m a market participant, and this is a free market solution.”
The four banks responded to the ban with statements that stressed their commitment to energy financing and described Moore’s action as a move to restrict free markets.
BlackRock took a similar line, saying that it does not boycott energy companies or pursue divestment from sectors or industries as a policy.
Attempts by banks to present a nuanced overview of their substantial ongoing energy financing – including citing $42.6 billion of credit exposure to oil and gas companies for JPMorgan at the end of 2021 and more than $118.9 billion of fossil fuel financing by Goldman since 2016 – may not resonate with Moore’s target audience of voters and fellow Republican officials who say they are sick of ‘woke’ policies, however.
It could also undermine efforts to promote ESG products.
My goal is that they all act like banks and assess risk and capital and not take politics into consideration
And there are cracks already developing in a potential united front by banks against the campaign by Republican state officials to restrict business with firms that endorse ESG principles.
US Bancorp, which is the fifth largest banking group in the country by assets but is based far from Wall Street in Minneapolis, was able to convince West Virginia to remove the firm from an original draft of the list of restricted financial institutions that was eventually published on July 28.
“US Bank’s (the firm’s main unit’s) environmental and social risk policy does not prohibit relationships with fossil fuel companies. As such, we are pleased to not be excluded from doing business in West Virginia,” the bank said in a statement.
Moore commended its flexibility and contrasted his interaction with US Bancorp with the response from JPMorgan, which like other Wall Street firms has been keeping senior executives away from a dispute that may not involve much of a short-term financial cost, but could develop momentum.
“I did not speak to Jamie Dimon (JPMorgan’s chief executive and chairman), it was his counsel and attorneys,” Moore says.
State intervention
JPMorgan’s general counsel Stacey Friedman gave a detailed response to Moore in a letter in mid-July that described the bank’s energy and green financing policies and condemned the approaching publication of West Virginia’s final restricted financial institutions list.
“It is regrettable that West Virginia is cutting itself off from parts of the market and attempting, via government action, to control the decisions made by private businesses. There are many examples across the country where this kind of state intervention ends poorly, including imposing unnecessary costs and additional expenditure of taxpayer funds,” Friedman said.
One example widely cited by banks is a recent study of a Texas law implemented in September 2021 that restricted municipal funding with firms that adopt certain ESG policies.
The June study by Wharton academic Daniel Garrett and Federal Reserve economist Ivan Ivanov concentrated on the effect of reduced competition as five major municipal bond underwriters withdrew from the local market.
“Our estimates imply Texas entities will pay an additional $303-$532 million in interest on the $32 billion in borrowing during the first eight months following the Texas laws,” the study’s authors wrote.
It is regrettable that West Virginia is cutting itself off from parts of the market and attempting, via government action, to control the decisions made by private businesses
That may not be enough to deter Texas officials from expanding their war on supposedly woke Wall Street banks, however.
“I commend Riley Moore for his work combating financial institutions that are actively working against the interests of the people and the economy of West Virginia. I am doing the same for the people of Texas and the Texas economy,” Texas comptroller Glenn Hegar said in a tweet on August 4.
Both men are active participants in the State Financial Officers Foundation, a 10-year-old grouping of Republican officials, and Moore is confident that Texas will use its considerable financial heft in a further imminent attack on perceived enemies in finance.
“It is going to be substantial and a lot worse for them when Texas comes in,” Moore predicts.
Hegar did not respond to a request for comment about future steps, such as a fresh list of restricted institutions.
Targets
The financial officers are not confining their attacks to Wall Street banks and BlackRock, which as the world’s biggest asset manager and a leading ESG proponent is often a focus of Republican or ‘red’ state anger, much of it directed at chief executive Larry Fink.
S&P Global is also under pressure over moves this year to incorporate ESG criteria in its US public finance ratings. Moore is worried that this could threaten West Virginia’s credit rating, despite the state’s current surplus and a roughly $1 billion rainy day fund.
“We could face a downgrade over this ESG nonsense. It’s crazy, that comes down to economic extortion,” he says.
This is another area where Republicans are coordinating their responses, with Utah, Idaho and Kentucky state finance officials writing successive letters in recent months addressed to Douglas Peterson and Martina Cheung, the chief executive and president of S&P Global Ratings, to condemn the adoption of ESG criteria in state ratings.
Red state officials clearly feel that they have momentum in their public battle against ESG, while big banks are trying to counter the accusations without inflaming their existing or potential customers.
In her letter to Moore, JPMorgan’s Friedman noted both the bank’s substantial exposure to fossil fuel companies and the $106 billion of financing provided last year to green initiatives such as renewable energy, for example.
The State Financial Officers Foundation, by contrast, was keen to praise US Bank for “changing your policy against carbon-based energy”, even though US Bank is not publicly stressing any change in tack and says that its environmental and social risk policies were in place before the West Virginia law went into effect.
Most banks do not want a shift towards Republican red state and Democratic blue state financing bifurcation in the US, for obvious commercial reasons. And red state treasurers might find that sanctions come with a tangible financial cost in the form of diminished competition for service provision.
Moore says that “plenty” of banks have been in touch about replacing the Wall Street names on West Virginia’s list of restricted institutions, without identifying the firms.
It will take time for the economics of the current backlash against ESG to be identifiable, but Wall Street firms are certain to remain a target for anti-woke campaigners.
