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"Humpty Dumpty sat on a wall. Humpty Dumpty had a great fall. All the king's horses and all the king's men couldn't put Humpty together again."
Folk legend has it that when Humpty Dumpty, the Royalist canon used during the English Civil War (1642-1651), fell off the church wall during the siege of Colchester, it couldn't be repaired and Parliamentarian forces prevailed. Some mistakes can't be undone is the message the nursery rhyme makes relevant to every generation.
So it is with Texas. State Senate Bill 13 banned financial firms from underwriting and insuring state and local governments in 2021 if they continued to "boycott" fossil fuel as part of their commitment to the Net Zero Banking Alliance promoting Environmental, Social and Governance (ESG) principles requiring members to align their lending and investments with net-zero greenhouse gas emissions by 2050. And now, in a departure from the pre-Covid era, the second-largest state and its top AAA credit rating raises money at higher relative rates of interest than lesser quality borrowers, such as California, whose government embraces ESG and promotes sustainability.
Money isn't ideological. It seeks relative value, assessing the worth of similar assets based on a defined set of variables. That helps to explain why insurance premiums for Texas homeowners are increasing faster than the national average following the pandemic amid rising construction, climate risk and reinsurance costs, according to an April 15 report by the Federal Reserve Bank of Dallas. Those costs are real. Bloomberg Intelligence found in June 2025 that at $1.1 trillion, no state has suffered more in climate related expenses over the prior 20 years than Texas.
Corpus Christi, the eighth-most populous Texas city with 317,000 people living along the Gulf of Mexico, is an example of local governments penalized by the market for inadequately protecting their communities by failing to plan for a changing climate. The municipality nearest to Elon Musk's lithium refinery built in 2023 now pays an unprecedented premium to sell its debt.
Until President Donald Trump, who claims climate change is a hoax, began his second term in January 2025, many on Wall Street resisted the Texas law, which was ruled unconstitutional in March and allowed to continue under appeal. Financial firms such as BlackRock Inc. and JPMorgan Chase Inc. capitulated to Attorney General Ken Paxton, the Republican candidate for governor this year who was impeached and suspended by his own party in 2023 on charges of bribery, abuse of office and obstruction, by pulling out of the United Nations-supported Net Zero Banking Alliance. Paxton then let them underwrite state and local government debt.
The Paxton reprieve for Wall Street didn't count for much. Texas, which is proud to be opposed to most taxes, historically borrowed money at rates similar to those states that take the opposite view, such as California, which benefited from demand from their residents for tax-free municipal bonds. Legislation banning ESG and its enablers from participating in state business wasn't intended to change the traditional investor relationship between higher-rated low-tax borrowers, such as Texas and Florida, and lesser-rated high-taxed borrowers. SB 13 proved otherwise.
Antipathy to science -- reflected in the Texas prohibition of ESG initiatives to address the carbon footprint and greenhouse gas emissions, energy efficiency, renewable energy use, waste management, recycling and pollution reduction, water conservation and protection of natural resources, employee health, safety, human rights, shareholder rights, transparent accounting and anti-corruption policies -- raised the cost of borrowing in the Lone Star State over California as much as $3 million annually for every $1 billion of bonds sold since SB 13, according to data compiled by Bloomberg. The extra cost to borrow is essentially a hidden tax on the state's citizens.
The message the municipal bond market is sending is that extreme weather is perilous and more expensive without laws mitigating its worst outcomes. Like everywhere else around the world, Texas in 2023 was the hottest ever. Several days in February that saw the temperature reach a record 115F (46C) were unprecedented. Flash floods in July that killed two people and forced hundreds of rescues in the Texas Hill Country were reminiscent of the Guadalupe River flood a year ago that killed 129 and left 166 missing.
Corpus Christi, serving half a million people across seven counties as well as businesses including ExxonMobil Holdings Corp. and Koch Industries LLC, was downgraded to A1 by Moody's last year amid signs it will run out of water by 2027. Fitch and S&P announced similar demotions earlier this year. "We don't know fully what the economic consequences could be or would be because we don't have any other situations in the United States of this magnitude," Ken Surgenor, a senior analyst at Moody's, told Bloomberg News. Dallas-based money manager Leslie Martin went one step further: "Corpus Christi is the closest to true crisis that I've seen."
The city's cost to borrow increased to 5.1% from 4.1% in 2025 and 3.7% in 2024. This means for every $2 billion borrowed, the city would have to pay $10 million more than the state of Texas than otherwise. For what it's worth, $10 million in Corpus Christi is the amount needed to rebuild a major city road (Gollihar Road) or construct a fire station. Bonds sold by the Corpus Christi Utility System lost 1.4% of their value this year, the sixth-worst performer among more than 300 Texas municipalities, according to data compiled by Bloomberg.
The perception of Texas among investors, meanwhile, deteriorated compared with California. The average additional cost Texas pays on its bonds rose 0.3 percentage point above the average 16 years prior to 2023, showing Texas is a depreciating credit. When Texas and California raise $1 billion at the same time, Texas pays $3 million more each year of its borrowing. And when Texas, with $365 billion of debt, refinances, it pays as much as $1.1 billion more in interest per year than California, according to data compiled by Bloomberg.
Texas isn't alone. Florida, which also banned ESG and its enablers in 2021, pays $4.2 million more than California in annual interest for each $1 billion borrowed. The average interest rate gap between Florida and California widened to 0.42 percentage point from 0.1 percentage point in the decade preceding Florida's legislation assailing ESG. Once Florida banned firms committed to clean energy and restricting firearms, the spread expanded to 0.42 percentage point from 0.1 percentage point, according to data compiled by Bloomberg.
Corporate America should be minding these differences in yields. In Corpus Christi, industry accounts for as much as 60% of the city's water demand. The Tesla Inc. lithium refinery in Robstown, nearby, would be disrupted by any depletion of the water supply.
Do Corpus Christi and Texas represent the tip of a melting iceberg for the municipal bond market? Perhaps. "We have not to date seen evidence of the pricing of climate risk within the muni market, aside from very specific cases," said Ruth Ducret, senior research analyst at Breckinridge Capital Advisors told Bloomberg News. "This could be one of them."
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Matthew A. Winkler, editor in chief emeritus of Bloomberg News, writes about markets.