18 JANUARY / FEBRUARY 2023 GR SUMMIT The financial services industry is under increased pressure from federal regulators, investors, customers and employees to adopt environmental, social and governance (ESG) policies. ESG may include policies that take steps to help combat climate change, promote responsible lending practices or describe the diversity, equity and inclusion (DEI) policies related to corporate governance and employment practices. ESG statements may vary widely in focus and highlight a variety of items from paid maternity leave to investment in renewable energy. Recently, regulatory pressures have intensified in the climate change risk mitigation area. ESG has also become an area of focus from federal regulators. As the regulators move toward policies requiring actions from the banking industry related to climate change risk, banks must move forward with compliance. In response to these market and regulatory pressures, many financial institutions have adopted ESG statements, outlining their commitment to move forward with regulatory initiatives. However, this transition has not come without challenges. Unfortunately, the growing force to push the financial services industry into climate risk management by the federal government has elicited pushback from state legislative branches. Several states have either proposed or passed legislation that would penalize financial institutions accused of boycotting certain industries, such as the fossil fuel (coal, natural gas and crude oil) and firearms industries. The mission of this legislation is to deter financial institutions from making business deESG and Forced Access What’s coming to the Statehouse, and what it means for your bank cisions perceived by the affected industries as discriminatory. The practical consequence of these legislative approaches is to pressure financial institutions into making business decisions that could run contrary to risk assumption, lending expertise and general ability to make the best business decisions for their shareholders and customers. Ultimately, the result would be banks having to manage a new risk when doing business with the protected industries due to the risk of being penalized. There is concern about the ramifications of this forced access legislation on banks of all sizes. On principle, banks should be free to exercise their right to lend to, invest in and generally do business with any entity or activity that is legal without government interference. They also should be able to choose not to engage in lending, investing or other activities so long as they do not violate fair lending or other anti-discrimination laws. There are numerous lawful reasons, including creditworthiness, why a bank may choose not to do business with a particular company or industry. Forced access legislation creates a mindset that the government better understands the nuances of banking decisions than the banks themselves. One bank’s decision not to do business with an industry or company does not mean that the industry or company will be denied business. That industry or company retains the right to seek the services of another financial institution. Indiana’s banking system alone has approximately 125 banks of all sizes, both state- and federally chartered. Forced access legislation to combat ESG policies turns banks into the proverbial ping-pong ball. Dax Denton Chief Policy Officer Indiana Bankers Association DDenton@indiana.bank Ross Teare Vice President - Government Relations Indiana Bankers Association RTeare@indiana.bank (Continued on page 53.)
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