ESG blacklists are bad for business

Blacklisting financial firms can be expensive, as a number of states have discovered after penalizing those who don’t invest according to lawmakers’ political preferences.

And while most of the attention has been on how those laws affect future and current retirees and individual taxpayers, those higher costs can weigh heavily on businesses and state economies.

Several states have enacted laws that cut off businesses from financial firms that consider environmental, social, and governance (ESG) factors when they choose investments. In most (but not all) cases, those are anti-ESG laws directed at firms considered hostile to the oil and gas or firearms industries.

They can be expensive, too. Business analyses in states like Texas and Oklahoma found the blacklists have cut into investment income in pensions and have added to the costs of public borrowing for construction of roads, prisons, schools, utilities, and other public works.

Oklahoma’s ESG law has been suspended by a state judge who is considering a permanent injunction, after finding they violate state constitutional provision against considering anything other than finance when making decisions about public pension investments.

In the run-up to that lawsuit, a University of Central Oklahoma analysis done for the Oklahoma Rural Association found the laws had cost the state’s taxpayers, municipalities, and businesses an estimated $185 million and were adding $11 million per month to that total while in effect.

The “Energy Discrimination Elimination Act” not only hit Oklahoma pensions, but the decreased competition that resulted when some banks were put on blacklists were raising the costs of public projects.

In one widely reported case, the city of Sweetwater gave up on necessary water projects after the law pushed the costs out of reach.

Texas businesses did their own study, with similarly alarming results. The Texas Association of Business Chambers of Commerce Foundation estimated the state’s laws would cost the economy $668.7 million and more than 3,000 fulltime jobs. That state has also been sued over its anti-ESG laws and has asked the courts to dismiss the complaint against it. That matter has not yet been heard in court.

Whatever the favored or disfavored industry in question, mixing politics into what is supposed to be a purely financial decision can be an expensive proposition — for future and present retirees, for taxpayers, and for businesses and the state economies they support.

Growing retirement and savings through the capital markets should always be focused on achieving the best returns for retirement investors. Public finances and investments should never come at the expense of taxpayers, businesses, or state economies either. Politics has no place in Americans’ investment decisions.