Tennessee plans to boycott banks, financial institutions that divest from fossil fuels

Financial institutions wanting to take climate action may no longer be able to do business with the state of Tennessee.

Last week, the Tennessee General Assembly passed a bill that prevents the state from working with banks or financial institutions that won’t work with fossil fuel companies — with an exception for when the state is unable to find an alternative.

Sen. Todd Gardenhire, R-Chattanooga, summarized the bill during the Senate vote last week.

“This bill would prohibit the state treasurer from entering into a contract or amendment with a state depository if the institution has a policy that prohibits financing to companies in the fossil fuel industry,” Gardenhire said.

Tennessee’s legislation defines “companies in the fossil fuel industry” as entities that obtain at least 50% of their annual revenue from business operations involving fossil fuels.

It’s unclear what will be considered a state depository. The bill says a financial company that does not meet certain requirements for state depositories “may still be designated as a state depository” by the state treasurer, governor or commissioner of finance and administration.

‘A dangerous precedent’ 

Sen. Jeff Yarbro, D-Nashville, opposed the bill and said it was “an intervention in the free market.”

“I think it’s a dangerous precedent for this body to set,” Yarbro said on the Senate floor.  “We’re deciding as a state to intervene in the market based on the private decisions of businesses that we don’t have any authority to control.”

The bill responds to the growing movement of financial divestment from coal, oil and gas. In recent years, some investors have been hesitant to fund companies that further the climate crisis. Other investors are wary of fossil fuel investments becoming stranded as countries try to limit greenhouse gas emissions.

In response, the fossil fuel industry has been pushing back via state legislatures.

Last year, Texas passed a law requiring its comptroller to make a list of the financial institutions that boycott energy companies — so that it could boycott those institutions. There have been similar bills proposed in at least seven states this year.

NPR reported that Texas has had trouble implementing its law, partially because it is hard to figure out which financial firms are divesting. Texas hired a financial ratings firm that analyzes green investments to get data, but the firm was committed to carbon neutrality before 2040 — an example of the type of business that Texas plans to boycott.

Divestment is gaining momentum

In Tennessee, the oil and gas industry employed about 4% of the state’s workers in 2019, according to the American Petroleum Institute.

Financial support for the fossil fuel industry remains significant — from 2016 through 2021, the world’s 60 largest banks provided more than $4 trillion to the industry, according to a report by several nongovernmental organizations.

Courtesy Flickr

Globally, faith-based organizations are leading the fossil fuel divestment movement.

But divestment is growing, as it becomes more common for investors to consider environmental, social and governance, or ESG, criteria. Globally, institutions that have divested are worth about $40 trillion. Faith-based organizations represent the largest source of divestment, followed by educational institutions, philanthropic foundations and pension funds, according to a database of fossil fuel divestment commitments. (Students are urging divestment at Vanderbilt University and the University of Tennessee.)

Diverging from fossil fuel heavy states, Maine was the first state to enact a law that requires fossil fuel divestment last year, and Virginia and New York have proposed similar laws.

The scientific consensus is that, to avoid catastrophic warming, countries must phase out fossil fuels, stop financing new fossil fuel development and transition to cleaner sources like renewables.

Tennessee’s legislature passed two other bills supported by the oil and gas industry this year: one that removes local control of new fossil fuel projects, and one that allows a cost recovery mechanism related to investments in natural gas infrastructure.