Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies
Open accessAbstract
We study how restricting intermediary contracting over ESG policies distorts financial market outcomes. In 2021 Texas prohibited municipalities from hiring banks with certain ESG policies, leading to the abrupt exit of five large municipal bond underwriters. Issuers that relied historically on the barred underwriters face higher uncertainty and borrowing costs after enactment of the laws, amounting to $300-$500 million in additional interest on $31.8 billion borrowed. We find that this effect arises from a decrease in underwriter competition, the destruction of existing relationship assets, and changes in placement style. We do not find any evidence in favor of capacity constraints.
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Garrett and Ivanov (2023) provide evidence that Texas legislation resulting in the banning of some of the largest municipal bond underwriters from doing business in the state has had a significant cost on the issuers of municipal bonds, a cost borne by Texas taxpayers.
“For instance, beyond the potential costs of divestment discussed above, Garrett and Ivanov (2023) provide evidence that Texas legislation resulting in the banning of some of the largest municipal bond underwriters from doing business in the state has had a significant cost on the issuers of municipal bonds, a cost that is borne by Texas taxpayers.”
From Presidential Address: Sustainable Finance and ESG Issues— <i>Value</i> versus <i>Values</i> (2023) · cites this paper as Garrett and Ivanov (2023)
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References 93 · Cited by 44
- Authors
- Garrett, D. G., & Ivanov, I. T.
- Affiliations
- University of Pennsylvania (US)
- Federal Reserve Bank of Chicago (US)
- Publisher
- Federal Reserve Bank of Chicago
- Published
- 2023
- OpenAlex
- W4323519159
- Cited by
- 44
- References
- 93
- Citations by year
- 2026: 6 · 2025: 12 · 2024: 13 · 2023: 13
- Type
- report
- Language
- en
- Open access
- green
- doi.org
- Locations
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Sustainable Finance and Green Bonds
- Social Sciences › Economics, Econometrics and Finance › Finance › Credit Risk and Financial Regulations
- Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Social Responsibility Reporting
- Keywords
- ESG regulation, municipal bonds, financial market distortions, borrowing costs, interest expenses
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