(Bloomberg Opinion) -- Addressing social and environmental challenges such as guns and climate change is one of the greatest responsibilities facing America’s policy makers. Lately, though, both Democrats and Republicans have been trying to pressure banks into doing this crucial job for them — and thereby getting them to absorb the political costs and risks involved. It’s a trend that’s both irresponsible and counterproductive.
No doubt, all companies — including those in the financial sector — must do more to manage social and environmental risks, in particular those related to climate change. To that end, the Securities and Exchange Commission is rightly working on climate-risk disclosure rules, so investors will have the information they need to make the best possible decisions and to hold public companies accountable. The Federal Reserve, for its part, should ensure that bank capital requirements take into account potential losses on vulnerable assets such as oil reserves and coastal real estate. Together with government initiatives aimed more broadly at curbing global warming, these policies should help align the profit incentive with the greater good.
Yet such reasonable aims are giving way to much less productive political battles. Some Democrats want the Fed to break up banks that fail to cut their lending to fossil-fuel companies. Sarah Bloom Raskin, the Biden administration’s nominee to head bank supervision at the Fed, has opposed extending emergency pandemic aid to the industry, a position that has helped put her confirmation in jeopardy.
More worryingly, Republican state legislators across the country are pushing for rules to protect favored companies against what they call unfair discrimination by the financial sector. Texas, for example, is denying municipal-bond deals to banks that officials deem to be “boycotting” gun makers. Other states are looking to punish lenders that they think are discriminating against fossil-fuel companies.
In polarized times, it’s a model that seems likely to spread — and to backfire. Using banks as a political bludgeon won’t further either side’s goals. Cutting off lending to energy companies would not only threaten to destabilize the financial system, but also cut off the power the country needs to transition to greener sources. And while state and local governments are of course entitled to decide who to do municipal-bond business with, excluding certain bidders from competition increases costs for taxpayers, and could coerce banks into lending to companies that they have legitimate commercial or reputational reasons to avoid.
Policy makers should instead be addressing issues such as climate change and guns head on — that is, through legislation. They should invest in clean energy and enact policies that increase the cost of actions that contribute to global warming. They should fund research on gun violence, tighten background checks and curb the modification of guns into assault weapons. Those who want to oppose such commonsense reforms should do so within the legislative process — not through proxies in the financial sector.
Once everyone — including consumers, investors and executives — can see where policy is headed and assess any risks involved, they shouldn’t need any further prompting from the government to devise the right response.
The Editors are members of the Bloomberg Opinion editorial board.
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