PHOENIX — State lawmakers have slapped down a bid to tell banks with whom they have to do business.
On a 29-29 vote, the House killed legislation that would have barred financial institutions from considering a company’s ESG score when deciding whether to lend them money. That refers to an analysis of a firm’s environmental, social justice and governance practices to determine the financial risk.
Rep. Jake Hoffman, R-Queen Creek, said this is becoming an increasing part of what have been traditional credit scores. He argued that lending decisions should be based on a company’s books, with everything else irrelevant — and none of the business of financial institutions.
“If you are not ‘green’ enough as a company they will lower your score,” effectively denying them access to capital, he told colleagues during hearings on the measure.
“This is especially bad for a state like us that has lots of mining interests and where we have natural resources that are in abundance because, in many cases, those companies are seen as not green enough.”
And that’s not all.
“If you’re not ‘woke’ enough as a company, they will lower your score for that,” Hoffman said. And he said lenders are also making decisions based on whether their board of directors is set up in certain ways.
The defeat came of House Bill 2656 came as two Republicans, Michelle Udall of Mesa and Joel John of Arlington lined up with every House Democrat in opposition.
Neither explained their decision. But Rep. Morgan Abraham, D-Tucson, chided the other Republicans for failing to understand what they were proposing.
“This is telling businesses how to act, what to do, what they can and cannot do,” he said. “I’m blown away by the dynamic I’m seeing.”
Hoffman, however, said lawmakers need to understand the implications of not taking steps to ban the use of ESG scores.
For example, he said, unless they are restricted, a bank may decide to charge a higher mortgage rate to someone because the home is not efficient as a lender thinks is appropriate, a difference he said could cost a homeowner hundreds of dollars a month.
“It’s certainly not going to impact the elites, the megacorporation wokesters who run these companies, the people who are in the Top 1%,” he said. “It’s going to affect low-income and middle-income families, the people who can’t afford to put solar on their homes, the people who can’t afford to drive a Tesla or some other green electric car.”
Rep. Joseph Chaplik, R-Scottsdale, said there are already practical effects of the ESG system. He said the National Credit Union Administration is requiring credit unions to evaluate climate risk when making agricultural loans.
“If the methane footprint of your cattle is too high, you may not get that loan,” he said.
Rep. Neal Carter, R-Queen Creek, had a different example.
He said McDonald’s is moving to improve its ESG score with a pledge to achieve net-zero emissions by 2050.
But here’s the thing: McDonald’s gets all of its cheese nationwide from Schreiber Foods. And he said that company gets much of its dairy from Pinal County farmers.
“So, in other words, Schreiber Foods is going to require local dairy producers to reduce their carbon footprint and alter their land-use practices, which is going to have an effect on residents of Pinal County like myself,” Carter said.
That pressure bothered Rep. Mark Finchem, R-Oro Valley.
“This whole program of ESG truly is an evil attempt to force people into doing something that they otherwise might not otherwise do,” he said.
The defeat of the bill is a victory for the financial sector.
During committee hearings, Jay Kaprosy, lobbyist for the Arizona Bankers Association, said his clients are doing nothing improper.
“What we see is we see banks that are making business decisions, who are evaluating their customer base, who are looking at the pros and cons of the work that they do, who are evaluating on a number of different factors about who they choose to do business with,” he said.
Rep. Diego Espinoza, D-Tolleson, said the issue for him is even simpler. He said there’s a sign just inside the door of Fuego Bar and Grill that he owns: We have the right to refuse service.
“Government shouldn’t be telling me who can and cannot be my business,” he said. “I should be able to make that determination based on a variety of factors.”