Lawmakers try again to cut ties with banks that divest from coal, study says it could be costly
State lawmakers want to cut ties with banks that they believe are discriminating against Indiana coal companies, firearm makers and others. Some banks have environmental, social and governance policies — or ESGs — that consider the environmental or social impacts of their investments.
House Bill 1008 would make it so investment managers that invest Indiana pension funds with such banks would no longer do business with the state.
Hallador Energy CEO Brent Bilsland said ESGs have hurt the Indiana coal company financially. He said less than a decade ago, they raised $500 million in capital between 15 banks.
“This time around I expect the number instead of 15 banks to be six, instead of $500 million to be $100 million. Our average ratio instead of being three and a half times is reduced to one. So think about that," Bilsland said.
Gun manufacturers and gun rights also advocates testified in support of the bill alongside the Indiana state treasurer, the Indiana Farm Bureau, and several conservative policy groups.
The Indiana Bankers Association and the Indiana Chamber of Commerce oppose the bill. Dax Denton, IBA chief policy officer, said it would exclude the state from investing with banks that are simply trying to avoid financial risks.
“I’ve got a financial institution that’s very strong in oil and gas, but they’re dialing back on their coal exposure because the market is transitioning away from coal. You see a lot of bankruptcies in the coal industry and so that might not be necessarily the best loan to make at that point," he said.
A recent study commissioned for the climate advocacy group The Sunrise Project shows this kind of legislation can cost taxpayers millions of dollars.
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The study looked at a similar law in Texas and analyzed what would happen in six other states. It estimated it would cost taxpayers in Kentucky an extra $26 million to $70 million in one year.
The study said these laws reduce competition for state bond issues — which drives up interest costs. Dan Connelly is with Econsult Solutions, which conducted the study.
“Obviously, folks who are proposing this legislation have their own goals in mind. But on the other side there will be costs that have to be weighed against those benefits," he said.
The agency that handles state pension funds, the Indiana Public Retirement System (INPRS), also expressed concerns about whether staff would be able to handle the increased workload that would come with vetting ESGs.
David Shin researches ESGs at Indiana University’s Kelley School of Business. He said the problem is there’s no one definition of what ESGs are or how to measure them. That could make enforcing bills like this difficult. Shin said even third party agencies that rate ESGs could view the sustainability of something like an oil and gas company differently.
“Defined as sort of 'brown' company by one rating agency. The same firm in the same year can be classified as 'green' company by different ESG ratings,” he said.
After all, companies can be involved in both sustainable and not-so-sustainable practices. Hallador itself is working to develop one gigawatt of renewable energy in addition to its coal production.
The state Senate has proposed a similar bill, Senate Bill 292, but it would only apply to how INPRS invests the state's pension funds — not investment managers. The agency is already required by law to invest in a way that only considers financial matters.
This is the second bill Rep. Ethan Manning (R-Logansport) has proposed to end relationships with banks that divest from fossil fuels.
Rebecca is our energy and environment reporter. Contact her at firstname.lastname@example.org or follow her on Twitter at @beckythiele.