Bonds

Three big muni banks land on Oklahoma fossil fuel boycotter list

Oklahoma’s state treasurer tagged three of the nation’s largest investment banks as fossil fuel industry boycotters, making them ineligible to do business, including municipal bond underwriting, with the state and local governments.

Wells Fargo, JP Morgan Chase, and Bank of America are on an initial list released Wednesday of 13 financial institutions determined to be boycotting the oil and gas industry.

“The energy sector is crucial to Oklahoma’s economy, providing jobs for our residents and helping drive economic growth,” Treasurer Todd Russ said in a statement. “It is essential for us to work with financial institutions that are focused on free-market principles and not beholden to social goals that override their fiduciary duties.”

The firms are ineligible for government contracts because they are engaged in “boycotts” of fossil fuel companies or they failed to reply to a questionnaire sent by the treasurer earlier this year, according to the statement, which noted companies may be added to or removed from the list every 90 days as an internal analysis continues.

Oklahoma joins other states that have targeted fossil fuel boycotts. A 2021 Texas law resulted in 11 financial companies being put on a list that included only one muni underwriter, UBS, which was subsequently dropped from deals. Utah Gov. Spencer Cox in March signed an expanded boycott bill that has a contract prohibition. A just-enacted Florida anti-ESG law could possibly thin the ranks of underwriters in that state.

JP Morgan Chase called the Oklahoma treasurer’s action “baseless,” pointing out that as the largest U.S. bank it is a top financer in the energy sector including traditional energy sources.

“Between 2021 and 2022 we provided over $2 billion in financing and other services to 40 Oklahoma companies in the oil and gas space,” a statement from the bank said. “Our business practices are not in conflict with this anti-free market decision, and we look forward to continuing to serve customers and communities in Oklahoma.”

BofA released a statement that said: “We look forward to continued discussion with the Oklahoma Treasurer about the many ways we serve clients and communities in Oklahoma, including in the energy sector.”

Wells Fargo declined to comment.

In 2022 rankings for bookrunning underwriters of muni debt sold in Oklahoma, JPMorgan Securities placed second, credited with seven deals totaling $1.4 billion, according to Refinitiv data. BofA Securities ranked sixth with five deals totaling $268 million and Wells Fargo was in 15th place with one deal totaling $47 million.

The three investment banks had underwriting roles in big ratepayer-backed taxable bond deals issued through the Oklahoma Development Finance Authority last year. BofA led a recent $40 million Oklahoma Housing Finance Agency single-family mortgage revenue bond issue that included JP Morgan as a co-manager. 

In a tweet Wednesday, Oklahoma Gov. Kevin Stitt said the state will not do business with financial firms that boycott and “prioritize (environmental, social, and governance) over their fiduciary duty to Oklahomans’ retirement funds.”

Shortly after taking office in January, Russ, a Republican, made a crackdown on ESG factors a top priority. His office was tasked with implementing the Oklahoma Energy Discrimination Elimination Act by compiling a list of boycotters for divestment purposes by state retirement systems. The law also prohibits state and local government contracts valued at $100,000 or more with companies that boycott.

Nearly 160 banks, financial institutions, and investment firms that do business with the state responded to the treasurer’s questionnaire.  

The law enacted in 2022 defines “boycott” as refusing or terminating business activities with energy companies or taking actions intended to penalize or inflict economic harm on them without an ordinary business purpose.

A study last year found Texas laws targeting fossil fuel boycotts and firearm industry discrimination increase borrowing costs for issuers in the state as a result of less competition among underwriters.

A subsequent study by Econsult Solutions Inc. looked at the impact if similar bills were enacted in six other states, including Oklahoma, finding that state would have incurred an estimated $49 million in additional interest costs for bonds issued last year.

An Oklahoma bill to prohibit contracts with companies that discriminate against the firearm industry died in a Senate committee last month.

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