Texas to drop reviews after banks quit climate group

Texas Attorney General Ken Paxton lauded recent moves by Bank of America (BAC), Morgan Stanley (MS), and JP Morgan to withdraw from the Net-Zero Banking Alliance and announced he will close reviews of the banks launched in 2023 that might have led to bans on underwriting municipal bonds in the state.

In a statement Tuesday, Paxton said the banks' membership in the Net-Zero alliance, which seeks a transition to net-zero greenhouse gas emissions by 2050, could have classified them as energy boycotters under a 2021 Texas law.

That law, which prohibits contracts worth $100,000 or more with companies that "boycott" the fossil fuel industry, was the basis for the review Paxton announced in October 2023 that included the three banks, as well as Wells Fargo (WFC), Barclays (JJCTF), and RBC Capital Markets.

"More and more financial institutions are taking a major step in the right direction by leaving the radical and anti-energy Net-Zero Banking Alliance," Paxton said in a statement. "The NZBA seeks to undermine our vital oil and gas industries, and membership could potentially prevent banks from being able to enter into contracts with Texas governmental entities."

In January 2024, Paxton's office banned Barclays (JJCTF), saying the bank declined to respond to questions about its environmental, social, and governance commitments.

After Wells Fargo (WFC) left the organization in December, it was cleared to continue to do business with the state and its local governments, including underwriting their municipal bonds.

Banks remaining under the 2023 review, including RBC, the last major municipal bond underwriter on the list, have been asked to update their responses to the attorney general's inquiries about their participation in the alliance, according to a notice to bond counsel from Leslie Brock, who heads Paxton's public finance division.

The notice also said BofA and JP Morgan are still under review in conjunction with another 2021 Texas law that prohibits governmental contracts with companies that "discriminate" against the firearm industry.

"As Bank of America (BAC) and JPMorgan (JPM) are still under review for purposes of Senate Bill 19, we will continue to require a bring-down certification shortly before bond closing until that review is concluded," the notice said.

With a "bring-down certification," an underwriter confirms the state can continue to rely on a standing letter, which is updated annually, stating that it is in compliance with the law.

Senate Bill 19 led in 2023 to a contract ban for Citigroup (C/PN), which later exited the municipal bond business nationwide.

Wells Fargo (WFC)escaped an underwriting ban in August 2023 when Paxton's office announced it was not able to determine if the bank had a policy or practice that discriminates against a firearm entity or firearm trade association.

While under review, all of the banks have participated in municipal bond deals in Texas.

In statements announcing their withdrawal from the Net-Zero alliance, two of the banks made it clear they were not abandoning the lower emissions effort.

JP Morgan remains "focused on pragmatic solutions to help further low-carbon technologies while advancing energy security," a bank spokesperson said on Tuesday.

Last week, Morgan Stanley (MS) said its "commitment to net-zero remains unchanged."

The constitutionality of the 2021 fossil fuel "boycott" law is being challenged by a business group, which in August filed a lawsuit in federal court against Paxton and Texas Comptroller Glenn Hegar, who have asked the court to dismiss the case.