The Texas attorney general’s office has refused to approve the sale of municipal school district bonds through UBS Group after the State Comptroller placed the firm on a list of companies that they consider to be boycotting the energy business due to ESG (economic, social, and corporate governance) considerations.
Normangee Independent School District accepted a bid by UBS on August 8th to underwrite a bond measure via competitive auction. But, after the AG’s ruling, the bond deal was pulled from UBS and instead given to the next-highest bidder: RBC Capital Markets.
This is notable because the UBS deal was inked at a more favorable interest rate and changing underwriters after the fact will lead to higher borrowing costs for the municipality.
This is not the first deal that UBS has lost out on due to its ESG stance, they’ve also been kept out of the bidding for a Laredo, Texas bond issue as a result of their ESG stance.
Also included on the list are BlackRock Inc, Credit Suisse, Jupiter Fund Management, and six other firms. The list was published in late August after nearly six months of research by Texas Comptroller Glenn Hegar’s office that included inquiries sent to nearly 150 Wall Street companies in the spring of 2022. The inquiries asked for information from each firm about their stance on sustainable investing and financing and whether they were shunning the oil and gas industry in their financing decisions.
“The environmental, social and corporate governance (ESG) movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” Hegar said in a statement on the Comptroller's Website.
Hegar’s office went on to cite lack of transparency in the sector as a challenge to gathering the information to compile their list. The comptroller says that the investigation and resulting list are intended to “shine a light on entities that are engaging in these practices and create some clarity for Texans whose tax dollars may be working to directly undermine our state’s economic health.”
The Normangee school district declined to comment on the matter, but indications are that the switch from UBS to RBS could cost the school district close to $300,000 in higher interest costs over the 25-year bond term.
We at Worthington Wealth believe that ESG considerations are corrosive to corporate valuations, and that ESG has no business being part of the Public Finance considerations. Corporations may answer to their shareholders, but municipalities are responsible to all of their constituents, not just those who agree with a certain social stance.