The ESG Initiative at the Wharton School


Academic research award: problem solvers for the planet

Outlet: Financial Times

The winners of the Responsible Business Education Awards have helped to address vital and sometimes overlooked societal and environmental issues in a practical way. Wharton Professor Daniel Garrett wins “best academic research with societal impact: publications and outreach that have influenced policy or practice” for his paper “Gas, Guns, and Governments” (Federal Reserve Bank of Chicago). 


The increasing emphasis that companies are placing on environmental, social and governance concerns has sparked a backlash from those who say this must result in worse profits. But, in Texas, where two laws barred municipalities from doing business with banks that boycott fossil fuel and firearms companies, this has ended up costing taxpayers millions of dollars in extra interest, according to research by Wharton assistant finance professor Daniel Garrett and Federal Reserve senior economist Ivan Ivanov.


The laws took effect in September 2021 and meant cities and counties could no longer work with five financial companies — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Fidelity — that had previously underwritten 35 per cent of municipal bonds in the state.


Garrett and Ivanov’s paper showed that the smaller, local financial organisations which stepped in were less experienced and charged higher interest and fees. The authors estimated that the law cost Texas taxpayers $303mn-$532mn, by comparing the interest and fees before and after the law was passed.


“I expected to find some ripples due to kicking out banks with certain ESG policies, but I was very surprised how large the negative impacts we estimate were,” says Garrett, whose research was described by judges as “brilliant”.


Similar studies aiming to replicate Garrett and Ivanov’s work for five other states considering similar laws — Kentucky, Florida, Louisiana, Oklahoma and West Virginia — warned of an estimated combined losses of as much as $708mn.