The research into the financial impact of anti-environmental, social, and governance (ESG) laws in Oklahoma has revealed startling results. According to a recent study by the Oklahoma Rural Association, a law that prohibited state and local government contracts with investment banks that “boycott” the fossil fuel industry led to a 59 basis points increase in municipalities’ borrowing costs on average. This increase in borrowing costs resulted in an estimated $184.7 million in additional expenses for Oklahoma municipalities. The study, conducted by Travis Roach, Chair of the University of Central Oklahoma’s Economics Department, emphasized the negative financial burden imposed on municipalities due to the law.
The Oklahoma law aimed to combat the perceived boycotting of certain industries by financial institutions but ended up creating unintended consequences. The inclusion of large financial institutions like Bank of America, JP Morgan, and Wells Fargo on the “boycotter” list resulted in higher borrowing costs for municipalities. As a result, some key financial institutions were forced to resign from underwriting government debt in Oklahoma, further restricting the availability of financial services in the state. Monica Collison, President of the ORA, criticized the law for its politically motivated attempt to remove certain banks from operating in Oklahoma.
Recognizing the negative impact of the law on municipal borrowing costs, state lawmakers are considering changes to the Energy Discrimination Elimination Act. Senate Bill 1510, which seeks to remove local governments and school districts from the law, passed the Senate with a 42-1 vote in February and moved to the House for further review. Another bill aims to limit the application of the law to state agencies with contracts worth $100,000 or more, while expanding the industries protected from boycotts to include timber, mining, and agriculture. Despite some legislative efforts to amend the law, challenges remain in addressing the financial burdens imposed on municipalities.
The financial impact of anti-ESG laws extends beyond Oklahoma, with similar laws enacted in Texas also showing increased borrowing costs for issuers in the state. A 2022 academic paper highlighted the potential consequences of such laws, indicating a rise in borrowing costs due to reduced competition among underwriters. A subsequent study by Econsult Solutions Inc. examined the impact of similar bills in six other states, including Oklahoma, estimating that the state would have incurred an additional $49 million in interest costs over a 12-month period. The findings underscore the need for careful consideration of the financial implications of anti-ESG laws on municipal borrowing costs.
The financial impact of anti-ESG laws on municipal borrowing costs is a significant concern for policymakers and stakeholders. The case of Oklahoma serves as a cautionary example of the unintended consequences of such laws, which can lead to increased financial burdens on municipalities and restrict access to financial services. As state lawmakers continue to debate amendments to these laws, it is crucial to prioritize the economic well-being of local communities and ensure that regulatory measures do not exacerbate financial challenges. By carefully examining the implications of anti-ESG laws on municipal borrowing costs, policymakers can make informed decisions that promote financial stability and support sustainable economic development.