Pulling Louisiana’s investments could ‘bite us in the butt,’ adviser tells treasurer

Treasurer John Schroder said he pulled nearly $800 million in Louisiana’s investments out of the asset management firm BlackRock earlier this month because its environmental focus conflicts with the state’s oil and gas interests. But the financial adviser the state pays to help make those decisions says Schroder’s move could ultimately have a negative impact.

The comments came Monday when the state Bond Commission, which the treasurer chairs, interviewed candidates for its municipal adviser contract. The adviser works with the Bond Commission to find the best interest rates when the state borrows money.

The five advisory firms under consideration include Lamont Financial Services of New Jersey, which has served in that role for 12 years. Its founder, Bob Lamb, was critical of Schroder’s decision.

“Eventually, it’s going to start costing you money,” Lamb told the treasurer. “I don’t know if we’re at that point. We’re not far away from it.”

The financial hit could come in the form of lower returns on investment or poorer scores from credit rating firms that also focus on environmental factors, resulting in higher interest rates on borrowing.

Schroder initiated questions with Lamont and the other advisory candidates about their investment philosophy and whether it involves environmental, social and governance (ESG) principles. The approach has taken root in the financial sector as investors and beneficiaries account for factors such as climate change and cultural impacts.

Rating agencies and investment firms with an ESG approach are “trying to force behaviors” rather than judging Louisiana on its ability to repay its debt, Schroder said. More states are pushing back, but Lamb said doing so is not without risk.

Lamont was the only adviser candidate among the five under consideration to challenge Schroder’s decision on BlackRock when asked. The treasurer also said Lamont disagreed with the Bond Commission’s decision to pull a financing deal from JP Morgan Chase last year over the bank’s refusal to do business with gun manufacturers that sell military-style weapons to the public.

“It does limit us,” Lamb told Schroder. “We, I believe, have been successful in trying to minimize any kind of cost that might bring to you, but eventually it’s going to bite us in the butt if we continue. So we just have to be careful and prudent about it.”

“Our bank list is getting short,” Lamb added, saying he expects the ESG emphasis to continue as younger investors interested in “doing good” replace baby boomers who are focused on financial returns. 

The treasurer said he welcomed dissenting opinions from the state’s municipal adviser but made his stance on ESG clear to the other candidates.

“What’s my position on global warming have to do with my ability to pay my bills?” he asked representatives of Hilltop Securities.

Throughout Monday’s meeting, Schroder conveyed his disappointment with the three major credit rating agencies – Fitch, Moody’s and Standard & Poor – that he said have repeatedly refused to recognize Louisiana’s improving financial health. An upgrade in the state’s bond rating from those firms would allow it to borrow money at lower interest rates.

Diana Hamilton with Sycamore Advisors of Indianapolis suggested Louisiana bring more individual investors down to see the state’s massive spending on coastal restoration. That infrastructure work, along with significant fiscal policy reform, have gone unnoticed, according to the treasurer, who entertained suggestions from some of the advisory candidates to seek alternative rating agencies.

That idea might not work, Lamb said during his interview, because most of the major bond buyers are required to follow ratings from the big three firms as part of their financing agreements.

The Bond Commission meets again Thursday, when its members are expected to award the municipal adviser contract.