Bank of America backtracks on lending ban to some gunmakers

Sergio Flores/Bloomberg

(Bloomberg) --Bank of America is loosening restrictions on lending to the firearms and energy industries amid pressure from anti-ESG politicians in Texas and Florida.

The bank backed off its ban on lending to companies that make assault-style guns used for non-military purposes. Rather, the firm will make such decisions on a case-by-case basis with senior risk officers, according to its latest environmental and social risk policy framework. The Charlotte, North Carolina-based bank also made similar changes to its energy lending policies — it no longer has a blanket ban on financing for Arctic drilling.

"Certain client relationships or transactions that carry heightened risks go through a due diligence process that involves senior level risk review," a Bank of America spokesperson said in an emailed statement. "We recently detailed that in our updated risk policy framework."

Republican-led states are targeting financial institutions for adopting environmental, social and governance policies that limit business with the firearms or fossil fuels industries. Texas restricts government work with companies that "discriminate" against firearms entities or "boycott" oil and gas companies. A new Florida law requires banks to attest that they don't — in the words of the state's chief financial officer — "politically discriminate." The pullback in Bank of America's gun policy exemplifies how the GOP is winning the anti-ESG fight.

The pressure campaign has hurt the public finance business of banks who have such approaches. Bank of America's updated policy was driven in part by legislation, including a Florida law targeting firms that work as depositories for state and local governments, according to a person familiar with bank officials' thinking on the matter. In order to serve as a depository to Florida municipalities, banks can't have any blanket prohibitions against lending to any industry, the person said.

If a financial institution is found not to comply with that law, they could be disqualified as an approved bank or face civil fines or lawsuits by Florida's attorney general, according to a report by law firm Mintz.

Business Recovering

The move appears to be working. The firm's bankers have told muni market participants in Texas that they feel more comfortable doing deals now that the firearms policy has changed, according to a person familiar with the matter.

After the Texas legislation went into effect in 2021, Bank of America suspended its public finance work in the state for about two years, a blow given the state is such a lucrative market.

But so far in 2024, the bank is credited with underwriting about $1.1 billion of Texas muni deals, compared to about $278 million during the same period in 2023, according to data compiled by Bloomberg. Bank of America is now the eighth-largest manager of deals in Texas, up 10 slots from this time a year ago. Nationally, it's number one.

More deals are in the pipeline: Bank of America is slated to underwrite a $259 million deal by the Lower Colorado River Authority, a public utility in the state. And in May, officials for the Texas Water Development Board approved the bank serving as senior managing underwriter on a potential deal.

Parkland Shooting

In 2018, Bank of America announced its plans to not finance the operations of certain firearms manufacturers, following a shooting at a high school in Parkland, Florida, that left 17 people dead.

"It's our intention not to finance these military-style firearms for civilian use," Anne Finucane, then-vice chairman at Bank of America, said at the time.

At the time, pro-gun groups like the National Shooting Sports Foundation swiftly criticized the lending limits. Three years later, Texas enacted a law that targeted banks over firearms restrictions.

Now Bank of America's policy describes arms and munitions as an area that needs heightened due diligence. "Any client or transaction involving the manufacture of military-style firearms for non-law enforcement, non-military use must be escalated to the senior-level risk committee for decisioning," the December 2023 document says.

That backs down from its stance in a 2022 policy document, which said Bank of America "will not currently finance the manufacture of military-style firearms for non-law enforcement, non-military use."

An Environmental and Social Risk Policy Framework published by the bank in 2019 described financing certain gunmakers as "contrary to our values, operating principles and Code of Conduct."

Dru Stevenson, a professor at the South Texas College of Law who studies firearm regulation, said his initial take is that the move "is a workaround by the bank rather than a true change in their perspective."

Obscurity around the financing policy will help the bank as it tries to avoid the ire of both liberal-leaning activist groups and Republican state officials, according to Stevenson. "It seems like a brilliant move by Bank of America to move itself out of the line of fire in the culture wars over guns," he said.

It's appropriate for banks to use heightened due diligence when considering lending to military-style weapons manufacturers, said Josh Scharff, general counsel for Brady, a gun violence prevention organization. If that approach is "done well," it would likely screen out financing to these companies because of the reputation and litigation risks posed by the sector, he said.

Energy Change

A separate 2021 Texas law targeted banks and asset managers for restricting work with oil, gas and coal companies — legislation that's spread to other states.

Bank of America also made similar changes to language surrounding its limitations on lending to the fossil fuels industry. The bank previously committed it would not provide direct financing for the construction of new coal-fired power plants or finance petroleum exploration in the Arctic.

But the bank's December 2023 policy says those decisions would instead be subject to heightened due diligence and be reviewed by senior risk officials. That change was reported earlier this year by the New York Times.

That's not the only example of finance companies pulling back from their commitments on climate. Money managers have left Climate Action 100+, an investor group formed in 2017 to fight climate change.

The war on Wall Street has spread to Washington. During a Senate Banking Committee hearing in December, Ohio Republican JD Vance warned the heads of Wall Street's biggest banks to stay out of public policy issues such as firearms, or risk losing Republican support on issues like tax breaks or regulations.