Kentucky threatens to halt business with 11 banks over fossil fuel 'boycotts'

Kentucky became the third state, after Texas and West Virginia, to put multiple leading investment banks on notice over their fossil fuel policies. The state's treasurer on Jan. 3 named four U.S. and seven European banks that she said were "engaged in energy company boycotts."

Under recently enacted Kentucky law, state entities cannot use the banks' services unless their investment policies are revised.

"Kentucky must not allow our signature industries to be irreparably damaged based upon the ideological whims of a few," State Treasurer Allison Ball said in a statement. Ball has been an outspoken critic of environmental, social and governance, or ESG, criteria used by many banks and asset managers as they make investment decisions.

The state said BlackRock Inc. — the top target for states cracking down on ESG — along with JPMorgan Chase & Co., Citigroup Inc. and Climate First Bank had been identified under a 2022 state law directing the treasurer to create and maintain a list of banks that restrict investment in companies "for dealing in fossil-fuel based energy."

The targeted European banks were BNP Paribas SA, Danske Bank A/S, HSBC Holdings PLC, Nordea Bank Abp, Schroders PLC, Svenska Handelsbanken AB (publ) and Swedbank AS

The banks have 90 days to change their investment approach once notified of their listing or state governmental entities must divest any direct or indirect holdings they have with the banks.

The Kentucky state law is nearly identical to legislation Texas passed that has since been adopted by West Virginia and several other Republican-controlled states. The states are collaborating on the issue through the State Financial Officers Foundation, a group representing Republican state officials who have made ESG a signature issue.

Kentucky: Energy sector supports local jobs

Kentucky is seeking to protect its energy sector jobs for current and future workers, said Matt Frey, a policy adviser and spokesperson for Ball. The state's fossil fuel-heavy energy sector accounts for nearly 8% of jobs in the state.

With the listed banks aiming to limit their investments in fossil fuel, their goals are not compatible with Kentucky's, Frey said in an interview.

While still a major player in the fossil fuel industry, BlackRock, for example, has targeted investing at least 75% of its assets in issuers with science-based climate goals by 2030.

The Kentucky treasurer's office said it conducted a thorough review of the firms before completing the Restricted Financial Institutions list. Frey said he was not aware of any financial analysis conducted to assess how a shift away from the large U.S. banks on the list could affect the state pension fund or other public funds.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.