Texas in 2021 passed legislation that prohibits state contracts and investments with companies that boycott energy companies.
DALLAS — The state of Texas’ recent divestment in companies over their stance on fossil fuels could cost the state hundreds of millions of dollars, according to a new study from the Waco-based Perryman Group.
The Perryman report totaled the overall impact — under hypothetical scenarios run by the study — to be as much as $821.1 million and would impact municipal bonds and major Texas pension funds.
The report also ran a scenario in which the divestments would cost $746.6 million.
Texas in 2021 passed legislation that prohibits state contracts and investments with companies that boycott energy companies.
The restrictions were aimed at the environment, social and corporate governance — also known as “ESG” — approach to investing and banks that have shifted investments to renewable energy sources.
The first major divestment under the legislation came earlier this year, when the state of Texas pulled $8.5 billion in assets from New York-based BlackRock, according to a report from Reuters.
The report compiled by the Perryman Group, a non-partisan firm that focuses on economic analysis, outlined the projected impact and expected losses from restricting state investments. The Perryman report estimated that a restriction on the number of banks involved in the Texas bond market “could lead to increased issuance costs in the form of net interest rates.”
The report ran hypothetical scenarios under the new restrictions and noted that while the new state policy might not initially lead to losses, “the potential for such economic harm is clearly present” if state investments have to be limited to fewer banks.
The Perryman report cited what happened in the immediate aftermath of the Texas divestment policy when banks temporarily left the Texas market to analyze if they were compliant. The report said bond issuances by government entities, including school districts, saw higher interest rates during that time.
“Irrespective of their intended purpose, initiatives which meaningfully restrict options available for public finance and bonds or pension investments can generate significant economic effects,” the Perryman Report stated. “If Texas policy leads to inefficiencies and less-than-optimal outcomes in the municipal bond market or the state’s pension funds it could cause significant deadweight losses to the economy as well as downstream consequences.”