Texas & Florida Paying Hundreds Of Millions More In Bond Interest Because Of ESG Bans

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The governors of Texas and Florida have declared war on Wall Street bankers who dare to consider environmental, social, and governance factors in making their business decisions. Companies committed to ESG favor protection of natural resources, human rights, health and safety, and community engagement.

Texas Governor Greg Abbott and Florida Governor Ron DeSantis hate those things and want nothing to to with all that “woke” stuff. They know that red-blooded Americans who are true patriots support the right of oil, gas, and coal companies to pollute the environment so badly that the very existence of humanity is put at risk.

The Paris climate accords? Pish tosh. Sea level rise? Ain’t happening. Unprecedented droughts, flooding, and wildfires? You gotta break a few eggs to make an omelet, people. And so, those two civic leaders have ordered their state pension funds not to do business with people who dare to disparage fossil fuels or who advocate for stricter gun laws.

That’s OK. Everyone should be free to choose who they do business with, and if Greg Abbott and Ron DeSantis want to preen and posture for the howling jackanapes who represent the worst aspects of our species, that’s fine. But in all good conscience, while they are blathering about their anti-woke scruples, they should also inform those voters that their anti-ESG policies are costing them hundreds of millions of dollars a year. But of course neither of those two august gentlemen have any intention of speaking the truth, so it’s up to us to assume that burden.

Matt Winkler, editor-in-chief emeritus of Bloomberg News, has written an article today that excoriates Abbott and DeSantis, as well as the other governors of rabid red states who have forbidden public entities in their states from doing business with anyone who peddles that ESG crap. In it, he cites a paper published last year by Daniel Garrett, a University of Pennsylvania professor, and Ivan Ivanov, a principal economist at the Federal Reserve. They reported that in Texas, municipal borrowers are paying as much as $532 million more in borrowing costs because of the Republican war with Wall Street over ESG.

Larry Fink, the head of BlackRock, is one of those “woke” Wall Street people. His company manages assets worth $10 trillion, making it the largest money manager in the world. He told his shareholders recently that Wall Street’s embrace of ESG is “capitalism driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.” Who would believe such obvious drivel?

Anti-ESG Policies Have Consequences

Since it began its assault on ESG in 2022, Texas, with its perfect AAA credit rating, is paying 19 basis points more in yield (the equivalent of $1.9 million on every $1 billion of bonds sold) than AA-rated California on routine borrowings, according to data compiled by Bloomberg. The city of Anna, Texas, paid more than it should have last September on two bond sales totaling almost $100 million when it rejected the most competitive bid from Citigroup because of the Republican-backed state law that punishes financial firms for promoting gun safety. Do the people of Anna know? That’s doubtful.

In Florida, DeSantis’ attacks on money managers and securities underwriters who oppose fossil fuels, voter suppression, and the criminalizing of reproductive rights as part of their investment strategies are poisoning the market for AAA rated Florida debt. Without the liquidity that comes from a robust group of underwriters, Florida now pays 43 basis points more in yield (or $4.3 million for every $1 billion of bonds sold) than California, which has a AA rating. That’s only 0.35% more than prior to 2022, but when billions in public borrowing is involved, that small difference can cost the state’s taxpayers tens if not hundreds of millions of dollars in higher borrowing costs. Way to go, Ron.

The War On Woke

Bloomberg contributor Stephen Carter explains the origin of the word “woke.” Originally, he says, it was a watchword for Black Americans derived from a Mississippi Delta blues song warning euphemistically of labor exploitation in the early 20th century mills. These southern states, where racist laws prevailed 50 years ago, now prohibit the biggest Wall Street banks from arranging and selling their new bond offerings because they are “woke.” The result is public financing projects often get assigned to smaller firms that may not have the resources or reach to ensure borrowers are getting the lowest possible borrowing costs.

We often hear reactionaries bleating about the horrors of socialism. Winkler writes that if socialism means state control of production, distribution, and exchange of goods and services, then Florida and Texas are socialist states. Not California, whose embrace of ESG and free markets has allowed it to borrow more cheaply than Florida and Texas even though it has lower credit ratings. Superior demand makes California debt the outstanding performer among the three largest US states.

JPMorgan Chase has 25,500 employees in Texas, but has been barred from doing business with the state because of its support for gun safety regulations and alternative energy. It contributed more than $17.5 million to nonprofit workforce readiness programs, community development, and neighborhood revitalization in 2019 and continues to expand its main Austin, Dallas, Houston, and San Antonio workforce at 130 Texas locations throughout the state.

Citigroup and Goldman Sachs have also been banned. Together with JPMorgan, they managed $540 billion worth of municipal offerings during the past five years. That represents 25% of the market for new issues according to data compiled by Bloomberg. On average, they charged a fee of 0.38% on those bond offerings, which is 0.11 percentage points lower than the average for the other 145 underwriters who provide similar services.

The Takeaway

How deliciously ironic that states that scream the loudest about socialism are in fact using state control over the companies who do business within their borders to advance their political agendas, all of which pander to the basest instincts of humanity. This is an unforced error that is costing their citizens untold millions of dollars in a quest for absolute, unfettered political power.

Conventional wisdom says money is the thing that motivates people the most. Others say it is sex. But the truth is the unquenchable thirst for power overrides both greed and lust by a wide margin. It makes people violate their own best interests to gain a smidgen more power. More than anything else, the thirst for power — which basically comes down to the ability to dictate what others are allowed to think, say, and do — will be the one thing that makes it impossible for humans to address the challenge of a warming planet in any meaningful way.

We’ve reached out to Governor DeSantis and Governor Abbott regarding these matters. We will update this article if they respond.