UBS Group is the only bank that underwrites municipal bonds on the list the Texas comptroller released Wednesday of 10 financial companies determined to be boycotting the fossil fuel industry under a 2021 law aimed at protecting the state’s oil and natural gas businesses.

Placement on the list could jeopardize UBS’ participation as a co-manager in an upcoming $3.4 billion Texas utility securitization bond sale as the law requires companies to verify they do not “boycott” energy businesses in order to obtain contracts with the state or local governments. 

UBS said it “firmly” disagrees with its inclusion on the list. 

“We provided their office with extensive information on our policies and practices, demonstrating that UBS does not boycott energy companies even under a broad interpretation of Texas law,” a company statement said.

Certain investment funds offered by Goldman Sachs, J.P. Morgan, RBC, and UBS were among nearly 350 on a second list the office of Comptroller Glenn Hegar compiled for divestment purposes. Many of them are funds with stated ESG or sustainability objectives.

UBS’ placement on the company-wide boycotters list is “bad news” for its participation in Texas muni deals, while being on the funds list may not prevent an investment bank from providing a verification statement, according to a market observer who asked not to be named.

A FAQ released by the comptroller’s office said if the required verification is provided, the law “does not prohibit a state agency from contracting with an entity that is affiliated with an entity that is listed.”

The lists are subject to change on a quarterly basis and Hegar said his office will gather additional information about how the firms may be boycotting energy companies. 

“This list represents our initial effort to shine a light on entities that are engaging in these practices and create some clarity for Texans whose tax dollars may be working to directly undermine our state’s economic health,” he said in a statement.

Hegar sent inquiries earlier this year to 158 financial companies, including seven banks that underwrite municipal bonds, about their treatment of the fossil fuel industry in an initial step towards compiling a list of boycotting companies.

The law, which took effect Sept. 1, says “boycott energy company” means “without an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a company” that produces, sells, or moves fossil fuels.

While the law mainly targets potential boycotters for divestment purposes, it also requires companies to provide written verification in contracts with the state and its local governments for goods and services valued at $100,000 or more that they do not and will not boycott energy businesses during the term of the contract.

Besides UBS, other muni underwriting banks that received inquiries from the comptroller were J.P. Morgan, Wells Fargo, Barclays, Goldman Sachs, Morgan Stanley, and RBC.

Despite uncertainty if any of the banks would land up on the boycott list, the Texas Natural Gas Securitization Finance Corporation in May selected Morgan Stanley as a co-senior manager and Barclays and UBS as co-managers for $3.4 billion of taxable bonds it plans to sell later this year.

Lee Deviney, executive director of the Texas Public Finance Authority, said he had not read the comptroller’s report and declined to comment further.

An April notice to bond counsel from the attorney general’s office said investment banks’ verifications that they are in compliance with the boycott law were under review due to the comptroller’s inquiry.

The Texas Department of Housing and Community Affairs cited the review for removing Barclays, RBC, and Morgan Stanley from its $190 million May bond sale.

The fossil fuel business boycott law, along with another law that contains similar contract restrictions for companies that “discriminate” against the firearm industry, have shaken up the rankings of top underwriters in Texas. 

JP Morgan, Bank of America, and Morgan Stanley, which ranked in the top four in 2021’s first half, have been displaced.

For the first six months of 2022, Piper Sandler ranked first, credited with $2.47 billion, followed by Jefferies, RBC Capital Markets, and Raymond James, according to Refinitiv data.

But Citigroup, which along with some other major banks announced firearm policies in 2018 after a gunman murdered 17 people at a Parkland, Florida, high school, was in fifth place in the first half of 2021 and 2022.

UBS, which ranked 15th among underwriters of debt in Texas in 2021 credited with $6.8 billion of bonds, was in 17th place in the first half of 2022 with $443 million of bonds, according to Refinitiv data.

A research paper found the two laws may increase borrowing costs for Texas issuers due to less competition among underwriters.

Oklahoma, Kentucky, and West Virginia enacted similar energy company boycott laws this year.

In July, West Virginia’s Treasurer Riley Moore put five financial companies on that state’s list of boycotters, including four banks that underwrite munis – Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo.