West Virginia Punishes Banks That It Says Don’t Support Coal
West Virginia on Thursday morning announced that five major financial institutions, including Goldman Sachs and JPMorgan, would be barred from doing business with the state because they have stopped supporting the coal industry.
The announcement, made by West Virginia’s treasurer, Riley Moore, is the first time a state has moved to sever banking relationships with major Wall Street firms over objections to their efforts to reduce dangerous planet-warming emissions.
This year, West Virginia enacted a law championed by Mr. Moore that gave him the authority to bar financial institutions from doing business with the state if they were found to be “boycotting” fossil fuels.
Last month, Mr. Moore sent letters to six financial firms notifying them that they could be barred from state business and giving them 45 days to respond. In addition to Goldman Sachs and JPMorgan, Mr. Moore wrote to three other banks — Morgan Stanley, Wells Fargo and U.S. Bancorp — as well as the world’s largest asset manager, BlackRock.
Of the six firms, all but U.S. Bancorp were barred from doing business with West Virginia on Thursday. The move comes just hours after Senator Joe Manchin of West Virginia, who for months has blocked the President Biden’s efforts to pass major climate legislation, announced a surprise deal that will radically expand federal support for renewable energy.
Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo have publicly said they were sharply reducing financing for new coal projects, while BlackRock has been reducing its holdings in coal companies since 2020.
Such moves are increasingly common on Wall Street as big financial firms move to reduce their financial exposure to industries like coal, which is a major contributor of planet-warming emissions, and has become less profitable in recent years.
Many big companies, including those that Mr. Moore has banned from state business, have also pledged to drastically reduce their own emissions in the coming decades, and to play an active role in supporting a transition to an economy that is less reliant on fossil fuels.
Mr. Moore said U.S. Bancorp had avoided inclusion on the state’s list of so-called restricted financial institutions because it had decided to eliminate policies against financing coal from its environmental and social risk policy.
Coal is the most polluting fossil fuel. U.S. coal production has been declining for more than a decade, thanks largely to the expansion of lower-cost natural gas.
Some of the targeted financial institutions currently have banking relationships with the state, including JPMorgan, which works with the West Virginia public university system, and is one of 25 designated depositories for the state, holding about $46 million, according to Mr. Moore.
Mr. Moore said those contracts would be wound down by the end of the year and that the state would begin looking for new service providers that did not have policies targeting the coal industry.
The financial institutions did not immediately reply to requests for comment.
In an interview, Mr. Moore described his enforcement of the new law as an effort to remedy what he described as an inherent conflict of interest for his state, the nation’s second-largest producer of coal after Wyoming.
“We’re handing money over to a financial institution that is generated from the fossil fuel industry,” he said. “At the same time, they’re trying to diminish those funds. There’s a clear conflict of interest there.”
In 2020, the BlackRock chief executive, Larry Fink, took aim at the coal industry in his annual letter to clients, announcing that the firm’s managed funds would begin divesting from coal companies.
“Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts,” he wrote. “With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector.”
Goldman Sachs is among the banks that has said it will stop financing most new coal projects.
“Coal fired power generation is one of the largest sources of air pollutants, including greenhouse gas emissions, and has other significant environmental, health and safety impacts on local communities,” reads a statement on the bank’s website. “However, coal fired power is still a significant source of electricity generation and a contributor to reliable and diverse energy supply, particularly in developing economies.”
All five companies targeted by Mr. Moore support environmental, social and governance principles, or E.S.G., a catchall term that has become a lightning rod for criticism from conservatives.
This year, Mr. Moore pulled about $20 million of the state’s operating funds out of BlackRock because he said the firm was excessively focused on E.S.G. priorities.
House and Senate Republicans have recently spoken out against the growing push to integrate climate risk more deeply into the financial system.
And more states are poised to take action against financial institutions that are backing away from fossil fuels.
Republican lawmakers in a dozen other states have advanced bills similar to the one being enforced in West Virginia, and governors in four states, including Texas and Oklahoma, have signed such laws.
On Wednesday, Ron DeSantis, the Governor of Florida, joined the campaign, proposing legislation that would prohibit financial firms that manage the state’s pension funds from considering environmental factors when making investment decisions.
While the coal business is waning, it is still big business in West Virginia. Taxes from coal and fossil fuel industries are the third-largest source of funds for West Virginia, according to the state. In the most recent fiscal year, the state collected some $769 million in severance taxes from coal and other fossil fuel companies, representing 13 percent of the $5.89 billion in funds collected by the state.
Mr. Moore declined to say whether he accepted the scientific consensus that emissions from the burning of fossil fuels are leading to catastrophic planetary warming. Instead, he said that even if that were the case, it was his responsibility to protect the livelihoods of West Virginians.
“At what cost to human flourishing are we willing to inflict these types of restrictions as it relates to access to cheap and reliable electricity?” he said. “As West Virginians, our ability to be able to help power the nation with the natural resources that we have is a benefit not just to us, but to the entire country.”