Restricting ESG strategies distorts financial market outcomes.  As investor interest in funds with environmental, social and governance (ESG) principles has increased, legislation restricting public sector activity with funds that pursue ESG-friendly principles has been proposed or passed in 17 states.  As a result, the transition to a negotiated sale may cost slightly more on average than a competitive sale, and bonds are placed with investors through a larger number of smaller transactions, which may indicate higher placement costs.  As potential underwriters exit the market, the remaining underwriters may consolidate their market power and competition in the market may decrease.  The loss of competition from anti-ESG laws and its negative impact on borrowing costs can be significant.

Garrett, Daniel G., and Ivan T. Ivanov. "Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies". Brookings. April 12, 2023. https://www.brookings.edu/... (Contributed by Gregory Autin).

Posted on 03/02/25

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