States Are Considering Laws That Penalize Banks for Fossil Fuel Divestment

TThe American Legislative Exchange Council (ALEC), a powerful right-wing lobby group, is driving a surge of new state laws to prevent boycotts of the oil sector. The group’s strategy, which aims to protect large oil firms and other conservative-friendly industries, is modelled on legislation to punish divestment from Israel.

State legislatures in West Virginia and Oklahoma have introduced versions of an ALEC-drafted law since the beginning of the year. the Energy Discrimination Elimination Act, to shield big oil from share selloffs and other measures intended to protest the fossil fuel industry’s role in the climate crisis. The legislation has been publicly supported by a dozen other states.

After the state passed its version of the law last January, Texas has begun compiling a list to target companies that refuse to do business with oil industry businesses. Top of the list is the world’s largest asset manager, BlackRock.

The push to blacklist firms that boycott the oil industry follows a meeting in December between politicians and ALEC, a corporate-funded organisation that writes legislation for Republican-controlled states to adopt and drive conservative causes.

At that meeting in San Diego, members of ALEC’s energy taskforce voted to promote the model legislation requiring banks and financial companies to sign a pledge to not boycott petroleum companies in order to obtain state contracts. The wording closely resembles that of laws drafted by ALEC and adopted in more than 30 states to block support for the Boycott, Divestment and Sanctions (BDS) movement against Israel’s oppression of the Palestinians.

Similar laws are being promoted to protect gun industry from boycotts.

The legislation written by ALEC, which has a history of extreme denial of the climate crisis, claims that “American and European fossil energy producers … are among the most socially and environmentally responsible companies in the world”. It laments that “corporations are boycotting fossil energy companies by refusing to provide them with products or services”, and says that share selloffs by financial funds hurt investors.

“Banks are increasingly denying financing to creditworthy fossil energy companies solely for the purpose of decarbonizing their lending portfolios and marketing their environmental credentials,” the draft legislation says.

“This model bill proposes a strategy in which states use their collective economic purchasing power to counter the rise of politically motivated and discriminatory investing practices.”

After major financial companies refused to fund new oil-and-gas drilling in the Arctic, the push to pass the legislation was made. Banks and other financial institutions are being pressured by customers and environmental groups to sell fossil fuel companies. JPMorgan Chase and Citibank, as well as Goldman Sachs, have publicly committed to support the transition away oil.

Every business with more employees than 10 would need to prove that it is not supporting boycotting fossil fuel firms in order to do business within a state government. State funds such as pensions will usually be required to sell investments made in corporations that refuse to lend to the oil industry.

ALEC’s push comes after the Texas legislature passed a version of the lawIn June 2021.

That legislation was backed by the Texas Public Policy Foundation, an active member of ALEC that is funded in part by Koch Industries, which accused Wall Street firms of “colluding in a coordinated attack against Texas and our way of life” by denying capital to oil firms.

TPPF, which has many members also working within ALEC, was then able to push for the law to become effective in other states.

Jason Isaac, a former Texas state legislator who now heads TPPF’s initiative to defend the oil industry, sent a memo to participants in the ALEC meeting in San Diego in which he criticised “woke” banks and other financial institutions he accused of “colluding to deny lending and investment in fossil fuel companies”.

“The following model policy is based on anti-BDS legislation supported by ALEC regarding Israel and was recently passed in Texas to include discrimination against fossil fuels. Voting for this model policy, and encouraging more state legislatures to adopt it, will send a strong message that the states will fight back against woke capitalism,” the memo saidAlex Kotch from the Center for Media and Democracy.

In January, Texas Lieutenant Governor Dan Patrick asked the state comptroller to put BlackRock, which manages an estimated $10tn worth of assets, at the top of its list of blacklisted companies because he said its pledge to work toward decarbonising the energy sector “will destroy the oil and gas industry and destabilize the economy worldwide”.

Patrick accused BlackRock chairman and CEO Larry Fink and his executives of making reassuring statements in private by saying the company “was committed to Texas and Texas’s vast energy footprint” but taking a different position in public by pledging to pressure energy firms to work toward net zero.

“Therefore, BlackRock is boycotting energy companies by basing investment decisions on whether a company pledges to meet BlackRock’s ‘net zero’ goals,” Patrick wrote.

BlackRock, which will lose approximately $20bn in Texas public-sector pension funds, is actually a significant shareholder in oil companies through index funds.

“BlackRock does not boycott energy companies,” it said in a statement to the Guardian. “We do not pursue divestment from oil and gas companies as a policy. We expect to continue investing in these companies, and will work alongside them as they drive the transition to maximize long-term value to our clients. Our primary concern with the law is the potential negative consequences it could have on current and future Texas pensioners.”

The anti-BDS legislation has been criticized and challenged by the courts. After courts ruled that the requirement for individuals to sign pledges to not boycott Israel violated free speech rights, several states were forced to amend anti BDS laws to limit their reach to larger companies. Kansas amended its law in 2018 following a federal lawsuit brought by a Wichita teacher who was told to sign a promise not to boycott Israel to keep her job. After a public outcry, Dickinson, Texas, removed a similar requirement from residents applying for hurricane damage relief.