The ESG Initiative at the Wharton School


Gas, guns, and governments: Financial costs of anti-ESG policies

Outlet: Brookings
Wharton’s Daniel Garrett and the Federal Reserve Bank of Chicago’s Ivan T. Ivanov report on the financial costs of anti-ESG legislation. 

As interest from investors in funds with environmental, social, and governance (ESG) policies has grown, so has a backlash from some politicians. Laws curtailing public sector activity with funds that take ESG-friendly actions have been proposed or passed in 17 states. One of them is Texas, where the state and political subdivisions raise about $50 billion in financing from the municipal bond market every year, placing it among the top three states in that market.

They estimate that Texas issuers will incur $300-$500 million in additional interest on the $31.8 billion borrowed during the first eight months following the implementation of the law. Additionally, they assert that, even in states with historically competitive public finance markets, the loss of competition from anti-ESG laws and the resulting adverse effect on borrowing costs may be significant.