Pub. 11 2022 Issue 4


President’s Message: Will the ESG Pendulum Become a Wrecking Ball?

Banks should also be free not to lend, invest or otherwise engage so long as they do not violate fair lending or other antidiscrimination laws.

In less than two years, the priority of the White House has shifted dramatically from the Trump Administration striving
for energy independence through domestic production to the Biden Administration striving to mitigate climate change by issuing executive orders designed to aggressively transition our nation away from fossil fuels. The shift of the political pendulum on energy policy has led federal regulatory agencies that directly govern or impact the banking industry to draft guidance documents, propose reporting requirements and initiate disclosure standards that are clearly intended to
limit and/or shift capital flowing to energy producers and energy users that produce greenhouse gas emissions. Like it or not, our industry has been pulled into the climate change debate.

The reality is climate change mitigation is only one of many objectives of a broader Environmental, Social and Governance (ESG) movement that is now being embraced by federal regulatory agencies, including the Treasury Department, Federal Reserve, FDIC, OCC, CFTC, and the SEC. ESG implementation by these federal agencies is being aggressively pursued despite the lack of direction from Congress, which begs an important question: If Republicans succeed in retaking control of the U.S. Senate and/or U.S. House of Representatives, what will they do in response to the ESG movement?

The answer to that question will likely come next January, but it’s safe to assume a Republican-led House and/ or Senate will push back hard on the ESG movement, which will likely create an unfortunate wrecking ball scenario with the banking industry caught in the middle. In Kansas, we are already keenly aware that some policymakers opposed to the ESG agenda are willing to retaliate against banks that withdraw access to credit in the name of adhering to the objectives of ESG. Legislation was introduced in several state legislatures this past spring, including Kansas, which would have essentially mandated lending and imposed penalties on any bank that restricts or limits capital to “any” legal business and industry. For our industry, these proposals to mandate lending are as damaging and misguided as the progressive ESG requirements they are designed to counter.

KBA recently joined a formal statement sent to the aforementioned federal agencies encouraging them to refrain from enforcing ESG guidance and requirements that would negatively impact the banking industry’s ability to provide critical financial services to the customers and communities they serve. The basic fundamental principle outlined in the letter stated:

Banks should be free to lend to, invest in, and generally do business with any entity or activity that is legal, without government interference. Banks should also be free not to lend, invest or otherwise engage so long as they do not violate fair lending or other anti-discrimination laws.

It’s unfortunate a letter was required to remind policymakers from both sides of the ESG debate that the free market
to the distribution of capital has provided us with the strongest and most resilient financial system and economy in the world. Hopefully, the ESG pendulum will stop swinging from the left to the right before it becomes a wrecking ball that damages the reputation of our industry and our ability to serve the diverse financial needs of the individuals, businesses, and communities that depend on us.

Please view the ESG State Alliance Letter to Federal Regulators in the ABA & State Bankers Letter article.