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Republicans push back on US climate regulation as Texas threatens to divest firms with anti-oil policies

Republican members of Senate banking committee warn of “political favouritism” and “radical policies”

Republican Senators are pushing back against efforts to regulate climate risk, warning  of “mission creep” at the Federal Reserve and Securities and Exchange Commission (SEC), as red state Texas considers new rules to force public funds to divest companies with energy-related exclusions.  

The moves suggest that, despite the speed of ESG-related rulemaking under the new Democractic Biden Administration, the US remains split along party lines. 

Yesterday, the US Senate Committee on Banking, Housing and Urban Affairs held its first-ever hearing on climate risk, with its Chair, Democratic Senator Sherrod Brown, warning: “We know far too little about how much climate-related risk is sitting on the books of banks and insurance companies. It’s not a surprise that Wall Street is trying to hide just how heavily they’ve invested in corporate polluters.”

Formal witnesses such as Marilyn Waite, a Climate and Clean Energy Finance Programme Officer at the William and Flora Hewlett Foundation, called for mandatory climate change disclosure, while others such as John Cochrane, a Senior Fellow at the Hoover Institution, said “climate change is an important challenge, but it poses no measurable risk to the financial system”.

In their representation, the Senate Banking GOP, representing Republican members, warned of “mission creep” by US Agencies. The Fed has recently stepped up on climate risk, creating the Supervision Climate Committee and mooting climate scenario analysis, and the Department of Labor (DOL) last week confirmed it would not enforce Trump-era ESG rules requiring workplace pensions to solely consider financial factors when selecting plan investments or casting proxy votes. Earlier this month, the SEC created the Climate and ESG Taskforce, and just yesterday, fellow US regulator the Commodity Futures Trading Commission established the Climate Risk Unit. 

Yesterday, the Senate Banking GOP also sent letters to the Federal Reserve and Department of Labor. 

In a letter to Fed Chair Jay Powell, the members wrote: “We question both the purpose and efficacy of climate-related banking regulation and scenario analysis, especially because the Federal Reserve lacks jurisdiction over and expertise in environmental matters.”

In another letter to Acting DOL Secretary Al Stewart, they said: “DOL’s decision to not enforce rules that protect the retirement savings of American workers is particularly concerning because it reportedly came after Wall Street asset managers lobbied the incoming Biden administration for this outcome. Asset managers that sell ESG funds – which ‘are a growing profit center for asset managers’ – stand to benefit from DOL’s decision.”

The pushback from Republicans comes as Republican-controlled state Texas considers a bill that would require state pension plans and investment funds to stop investing in companies that “boycott energy companies”. 

Senate Bill 13, introduced yesterday by Republican state Senator Brian Birdwell, calls for the state's comptroller to “prepare and maintain, and provide to each state governmental entity, a list of all companies that boycott energy companies.”

The funds cited in the bill include the $155.2bn Texas Teacher Retirement System and the $116m Texas Emergency Services Retirement System.

Other Republican-controlled oil and gas states such as Alaska and North Dakota are also reportedly considering similar legislation to make state funds cut ties with companies excluding fossil fuels.  

The North Dakota bill would require a study into how the state could completely divest from companies that boycott energy or commodity investments is based on model legislation developed by the Texas Public Policy Foundation. The foundation is reportedly pushing for similar legislation in Alaska, Indiana, Kentucky, Pennsylvania, Oklahoma and West Virginia.

In January, federal regulator the Office of the Comptroller of the Currency announced it was stalling the implementation of the ‘fair access’ rule – a controversial plan to stop US banks from introducing exclusion policies for sectors including fossil fuels. The rule will be assessed as part of a broader review of climate-related policies by the Biden Administration.