Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies

70 Pages Posted: 7 Jun 2022 Last revised: 14 Feb 2023

See all articles by Daniel Garrett

Daniel Garrett

University of Pennsylvania - Finance Department

Ivan Ivanov

Federal Reserve Bank of Chicago

Date Written: May 30, 2022

Abstract

We study how regulation limiting ESG policies distorts financial market outcomes. In 2021 Texas enacted laws that prohibit municipalities from contracting with banks with certain ESG policies, leading to the exit of five of the largest municipal bond underwriters from the state. Issuers previously reliant on these underwriters face higher uncertainty and borrowing costs since the enactment of the laws. These effects are consistent with deterioration in underwriter competition as issuers face fewer potential underwriters. Texas issuers will incur $300-$500 million in additional interest on the $31.8 billion borrowed during the first eight months following enactment.

Keywords: ESG Policies, Public Finance, Municipal Bonds, Banking Competition

JEL Classification: G24, G28, H74

Suggested Citation

Garrett, Daniel and Ivanov, Ivan, Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies (May 30, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=4123366 or http://dx.doi.org/10.2139/ssrn.4123366

Daniel Garrett (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://fnce.wharton.upenn.edu/profile/danielgg/#research

Ivan Ivanov

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

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