West Virginia announced Thursday morning that five major financial institutions, including Goldman Sachs and JPMorgan, are banned from doing business with the state because they no longer support the coal industry.
The announcement, made by West Virginia treasurer Riley Moore, marks the first time a state has cut banking ties with major Wall Street firms over objections to their efforts to reduce the planet’s dangerous emissions.
This year, West Virginia passed a law championed by Mr. Moore that gave him the power to ban financial institutions from doing business with the state if found to be “boycotting” fossil fuels.
Last month, Mr. Moore sent letters to six financial firms informing them that they could be barred from state affairs and gave them 45 days to respond. In addition to Goldman Sachs and JPMorgan, Mr. Moore wrote to three other banks – Morgan Stanley, Wells Fargo and US Bancorp – as well as the world’s largest asset manager, BlackRock.
Of the six companies, all but US Bancorp were banned from doing business with West Virginia on Thursday. The move comes just hours after West Virginia Senator Joe Manchin blocked President Biden’s efforts to pass key climate legislation for months. announced a surprise deal that will radically expand federal support for renewable energy.
Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo have publicly said they are scaling back funding for new coal projects, while BlackRock has been phasing out its actively managed interests in coal companies since 2020.
Such moves are becoming more common on Wall Street as major financial firms move to reduce their financial exposure to industries such as coal, which are a major contributor to global warming, and have become less profitable in recent years.
Many large corporations, including those Mr. Moore has banned from state business, have also pledged to drastically reduce their own emissions in the coming decades and take an active role in supporting a transition to an economy less dependent on fossil fuels. .
Mr Moore said US Bancorp had avoided being included on the state’s list of so-called restricted financial institutions because it had decided to remove the policy against coal financing from its environmental and social risk policy.
Coal is the most polluting fossil fuel. US coal production has been declining for more than a decade, largely due to the expansion of cheaper natural gas.
Some of the targeted financial institutions currently have banking relationships with the state, including JPMorgan, which partners with West Virginia’s public college system, and is one of 25 designated custodians for the state, with about $46 million, according to Mr. Moore.
Mr Moore said those contracts would be phased out by the end of the year and the state would look for new service providers who had no policies focused on the coal industry. The law does not affect ownership of the West Virginia pension system.
JPMorgan said: “This decision is short-sighted and unrelated to the facts,” adding that its “business practices do not violate this anti-free market law.”
BlackRock said it “does not boycott energy companies” and “does not pursue divestments from sectors and industries as a policy”.
Morgan Stanley said it was “disappointed” with the decision and that it “is not boycotting fossil energy companies.”
Wells Fargo said in a statement it “values its relationship with the state of West Virginia and our customers there and we disagree with this decision.”
Goldman Sachs did not immediately respond to requests for comment.
In an interview, Mr. Moore described his enforcement of the new law as an attempt to resolve what he described as an inherent conflict of interest for his state, the nation’s second-largest coal producer after Wyoming.
“We are handing over money to a financial institution that is generated from the fossil fuel industry,” he said. “At the same time, they are trying to reduce those funds. There is a clear conflict of interest there.”
In 2020, BlackRock focused on the coal industry in its annual letter to clients, announcing that the company’s managed funds would begin to divest coal companies.
“Thermal coal is significantly carbon-intensive, is becoming less and less economically viable and is highly exposed to regulation due to its environmental impact,” wrote the company’s executive committee, which is headed by CEO Larry Fink. “With the acceleration of the global energy transition, we do not believe that the long-term economic or investment base justifies further investment in this sector.”
Goldman Sachs is one of the banks that has said it will stop financing most new coal projects.
“Coal-fired electricity generation is one of the largest sources of air pollutants, including greenhouse gas emissions, and has other significant environmental, health and safety impacts on local communities,” it reads. a statement on the bank’s website. “However, coal-fired energy is still an important source of electricity generation and contributes to a reliable and diverse energy supply, especially in emerging economies.”
All five companies Mr. Moore focuses on support environmental, social and governance principles, or ESG, a catchphrase that has become a lightning rod for criticism from conservatives.
This year, Mr. Moore withdrew about $20 million of the state’s corporate funds from BlackRock because he said the company was too focused on ESG priorities.
Resistance to ESG is increasing in Republican circles. Former Vice President Mike Pence, a potential Republican presidential candidate in 2024, recently said he wanted to Keeping ESG in check.
House and Senate Republicans have recently spoken out against growing pressure to integrate climate risks more deeply into the financial system.
And more states are poised to take action against financial institutions moving away from fossil fuels.
Republican lawmakers in a dozen other states have introduced bills similar to those in West Virginia, and governors in four states, including Texas and Oklahoma, have signed such laws.
On Wednesday, Florida governor Ron DeSantis joined the campaign, proposing legislation that would prohibit financial companies that manage state pension funds from taking environmental factors into account when making investment decisions.
While the coal trade is declining, it’s still big business in West Virginia. Taxes from the coal and fossil fuel industries are the third largest source of funds for West Virginia, according to the state. In its most recent fiscal year, the state collected some $769 million in severance payments from coal and other fossil fuel companies, representing 13 percent of the $5.89 billion in funds raised by the state.
Mr. Moore declined to say whether he accepted the scientific consensus that emissions from burning fossil fuels lead to catastrophic planetary warming. Instead, he said that even if that were the case, it was his responsibility to protect the livelihoods of West Virginians.
“At what cost to human prosperity are we willing to impose these kinds of restrictions when it comes to accessing cheap and reliable electricity?” he said. “As West Virginians, our ability to help the nation with the natural resources we have is an advantage not just to us, but to the entire country.”