Kentucky threatens to divest from 11 financial giants

The US state of Kentucky has warned 11 large financial institutions including Schroders, BlackRock and JPMorgan Chase that they will be subject to divestment if they continue to “boycott” fossil fuel companies.

A bill passed by the Kentucky General Assembly requires state treasurer Allison Ball to publish an annual list of financial companies that engage in energy “boycotts”. The list, confirmed this week, comprises: BlackRock; BNP Paribas; Citigroup; Climate First Bank; Danske Bank; HSBC; JPMorgan Chase & Co; Nordea Bank ABP; Schroders; Svenska Handelsbanken; and Swedbank.

These are now considered “restricted financial institutions” under Kentucky law. State entities have 30 days to notify the treasurer of any direct or indirect holdings in the listed firms, while restricted institutions have 90 days to end their energy boycott to avoid divestment.

Kentucky will also refuse to enter into any new contracts with the 11 institutions while they are still on the list.

‘Lifeblood’ of capital

According to Ball: “When companies boycott fossil fuels, they intentionally choke off the lifeblood of capital to Kentucky’s signature industries.

“Traditional energy sources fuel our Kentucky economy, provide much needed jobs, and warm our homes. Kentucky must not allow our signature industries to be irreparably damaged based upon the ideological whims of a select few.”

Ball pointed out that there are 143,994 energy sector jobs in Kentucky representing about 7.8% of the bluegrass state’s workforce. It was the seventh-largest coal-producing US state in 2021 and generates 71% of its electricity from coal-fired plants.

The state treasurer suggested that it was too early to estimate how much money may be at risk of divestment.

Response from institutions

In response, Marina Severinovsky, Schroders’ head of sustainability for North America, said the asset management company was obliged to identify financial opportunities and risks to investment portfolios, including those posed by the climate transition.

“We do not make investment decisions with the intent to penalise or inflict harm on companies or industries, but rather to fulfil our fiduciary responsibility to our clients by identifying investments that we believe are appropriate for their portfolio objectives and meet their mandates and guidelines,” she added.

A spokesperson for BlackRock said its agenda was delivering the best financial results for clients. “On behalf of our clients, we have invested approximately $276bn in energy companies globally. BlackRock does not boycott energy companies and will continue to be investors across the energy sector.”

JPMorgan Chase & Co pointed out that it was among the largest financiers of both traditional and renewable energy industries in the US, including in Kentucky.

“We believe our business practices are in line with Kentucky law, and we are hopeful a deeper look at these facts would lead to reconsideration,” a spokesperson said.

Anti-ESG movement

Kentucky’s threatened divestment is the latest in a series of legal moves by Republican-led (red) states. They see environmental, social and governance (ESG) investing as part of an ideological, “woke” agenda to interfere with the free market and curtail the fossil fuel industry.

Similar anti-ESG approaches have been taken by lawmakers in Florida and Texas, and more are expected in 2023.

Political pressure in the US is also thought to be the reason behind the decision by Vanguard, the world’s second-largest asset manager, to leave the Net Zero Asset Managers initiative in December 2022.