February 28, 2024

The Nerve Archive

Where Government Gets Exposed

Senator plans bill to ban ESG factors in private loans, state pension

Update 2/22/23: Sen. Josh Kimbrell, R-Spartanburg, introduced a bill (S. 559) today that would ban banks and credit unions from using “social,” or ESG-based, credit scores in deciding whether to make loans to individuals or businesses. The bill, which is co-sponsored by seven other Republicans, was referred to the Senate Banking and Insurance Committee.

By RICK BRUNDRETT

A state senator says he plans to again push legislation that would help protect borrowers from being denied credit because they don’t hold liberal “environmental, social and governance” views.

In an interview Monday with The Nerve, Sen. Josh Kimbrell, R-Spartanburg, who co-sponsored a similar bill last year with Sen. Sean Bennett, R-Dorchester, said he also would like a new bill to ban ESG factors from being considered in the state pension plan.

“It certainly is a priority of mine to see some movement on this,” said Kimbrell, who previously worked for years as a commercial banker. “I’m hopeful we can do something soon.”

Kimbrell said he hopes the new bill, which currently is being drafted, can move through the Senate Banking and Insurance Committee, of which he and Bennett are members, over the “next three to six weeks,” with the goal of passing legislation this year.

The official deadline this year for one chamber of the 170-member Legislature to pass bills to be considered by the other chamber is April 10.

Contacted Wednesday by The Nerve, Sen. Ronnie Cromer, R-Newberry, who chairs the Banking and Insurance Committee, said he would have to see whatever legislation is introduced by Kimbrell and Bennett before deciding whether to commit to it, noting, “We’ll more than likely let the bill have a hearing.”

Cromer added, though, he supports Kimbrell’s and Bennett’s legislative goal in general.

“I think an applicant for a loan should be judged on their past history of loan payments, on their net worth, on their assets versus liabilities,” he said. “I don’t think it ought to have anything to do with the fact that they may believe or not believe in some of the social justice issues that are coming about now.”

Critics contend that ESG scores routinely are being used by investment and accounting firms, banks and credit rating agencies to grade companies on how well they have adopted certain liberal policies or values, such as reducing the effects of climate change, increasing diversity on their governing boards, and supporting social justice causes. There is no single-accepted national standard for determining ESG scores.

Regarding public pension plans, critics say investment management companies could substitute ESG factors for traditional financial considerations, resulting in investments having lower rates of return and plans being underfunded.

Kimbrell said he believes no one should be approved or denied credit based on “where they stand on climate change or guns.”

“What I’ve said on the floor of the Senate, it’s essentially a social FICO score,” he said. “If you start being denied credit based on what you believe, not whether you pay your bills, that is a very dangerous precedent.”

Under last year’s Senate bill, which didn’t make it out of the Banking and Insurance Committee, banks and credit unions would have been required to disclose that they used ESG factors in denying credit or charging different interest rates for similar transactions. The disclosure requirement also would have applied to insurers that denied or reduced coverage based on ESG criteria.

Kimbrell said the fear of being denied credit because of poor ESG scores is more than hypothetical, referring to a 2018 announcement by a Bank of America official that the company planned to stop lending money to gun manufacturers that made “military-style” firearms for civilian use.

South Carolina Bankers Association president and CEO Fred Green told The Nerve last year that he didn’t believe the then-Senate bill was necessary, contending, based on a survey of association members, that banks doing business in the state don’t use ESG scores – which Kimbrell still disputes.

“I don’t think most of the community banks (are using ESG scores in credit decisions), but I think that’s where the big guys are headed,” Kimbrell said. “Bank of America may try to tell me that’s not what they’re doing, but I don’t believe that for a second. I’ve talked to them; I’ve seen the reports.”

In its annual 2022 proxy statement, Bank of America (BOA) says it has “long operated our company to drive and deliver Responsible Growth,” including “through our wide-ranging ESG activities.” One such goal, according to the statement, is to achieve “net zero greenhouse gas (GHG) emissions in our financing activities, operations, and supply chain before 2050 (Net Zero Goal).”

BOA’s website also says that its  “ESG strategy, policies and practices” include “Stakeholder Capitalism Metrics” developed by the International Business Council (IBC) of the World Economic Forum, noting the bank’s CEO chairs the IBC and “partnered on the development of these metrics.”

The ESG movement often is referred to as “stakeholder capitalism” or “sustainable investment.”

Kimbrell said besides ESG disclosure requirements, he would like a new bill to include a ban on ESG factors in state investments. The Nerve first reported on the issue last May, revealing that two major investment firms that are big ESG proponents – New York-based BlackRock and Boston-based State Street Corporation – handle a substantial portion of the pension plan for state retirees.

Lawmakers currently are considering at least two House bills aimed at prohibiting the investment of state retirement funds based on ESG factors, one of which was filed initially in December by Rep. Doug Gilliam, R-Union. The other bill, sponsored by Rep. Bill Taylor, R-Aiken, and co-sponsored by 46 other Republicans, including House Speaker Murrell Smith, R-Sumter, and Gilliam, was introduced last month after The Nerve reported about Gilliam’s bill.

Gilliam’s bill is before the House Ways and Means Committee, while Taylor’s bill was referred to the chamber’s Labor, Commerce and Industry (LCI) Committee.

Gilliam also is the main sponsor of another bill before the LCI Committee that generally would ban government agencies from awarding a contract of at least $50,000 to a company that uses “any environmental, social, and governance (ESG) standards,” or engages in “economic boycotts” against other businesses legally involved in, among other things, “fossil fuel-based” or firearms-related industries. The contract ban would apply to a company with at least 10 full-time employees.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

Nerve stories are free to reprint and repost with permission by and credit to The Nerve.

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