PHOENIX — State lawmakers have rejected an offer to tell banks who they should do business with.
In a 29-29 vote, the House struck down legislation that would have prohibited financial institutions from considering a company’s ESG score when deciding whether to lend them money. This refers to an analysis of a company’s environmental, social justice and governance practices to determine financial risk.
Rep. Jake Hoffman, R-Queen Creek, said it’s increasingly becoming part of mainstream credit ratings. 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’re not ‘green’ enough as a business, they will reduce your score,” effectively denying them access to capital, he told colleagues at hearings on the measure.
“It’s especially bad for a state like ours that has a lot of mining interests and where we have abundant natural resources because in many cases those companies are considered not green enough.”
And that’s not all.
“If you’re not ‘woke’ enough as a business, they’ll lower your score for it,” Hoffman said. And he said lenders also make decisions based on how their board is set up in certain ways.
The defeat of House Bill 2656 came as two Republicans, Michelle Udall of Mesa and Joel John of Arlington, lined up with all House Democrats in opposition.
Neither has explained their decision. But Rep. Morgan Abraham, D-Tucson, chastised fellow Republicans for not understanding what they were proposing.
“It’s about telling businesses how to act, what to do, what they can and can’t do,” he said. “I’m blown away by the dynamic I see.”
Hoffman, however, said lawmakers need to understand the implications of not taking action to ban the use of ESG scores.
For example, he said, unless they’re limited, a bank may decide to charge someone a higher mortgage rate just because the house isn’t as energy efficient as a lender makes it. deems appropriate, a difference he says could cost the homeowner hundreds of dollars. a month.
“It certainly won’t impact the elites, the wokesters of the megacorporations 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, people who can’t afford to put solar power on their homes, 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 requires credit unions to assess climate risk when making agricultural loans.
“If your livestock’s methane footprint is too high, you might not get that loan,” he said.
Rep. Neal Carter, R-Queen Creek, had a different example.
He said McDonald’s is set to improve its ESG score by committing to net zero emissions by 2050.
But here’s the thing: McDonald’s buys all of its cheese nationally from Schreiber Foods. And he said that company gets a lot of its dairy from Pinal County farmers.
“So in other words, Schreiber Foods is going to be requiring local dairy farmers to reduce their carbon footprint and change their land use practices, which will have an effect on Pinal County residents like me,” Carter said.
This pressure bothered representative Mark Finchem, R-Oro Valley.
“This whole ESG agenda is really a diabolical attempt to force people to do something they wouldn’t otherwise do,” he said.
The defeat of the bill is a victory for the financial sector.
During committee hearings, Arizona Bankers Association lobbyist Jay Kaprosy said his clients weren’t doing anything improper.
“What we’re seeing is we’re seeing banks making business decisions, evaluating their customer base, looking at the pros and cons of the work they do, 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 was even simpler. He said there was a sign just inside the door of the Fuego Bar and Grill that belongs to him: We have the right to refuse service.
“The government shouldn’t tell me who can and can’t be my business,” he said. “I should be able to make that decision based on a variety of factors.”