Editorial Review: Climate Change and Investment in Minnesota
Published Friday, September 16, 2022 at 20:50
Minnesota, like many companies, would be foolish not to consider the risks.
Minnesota auditor Julie Blaha is urging the state to adopt so-called ESG investment guidelines, short for Environmental, Social, Governance. Quietly, more companies of all sizes have begun to apply the same principles to guide their investment portfolios. It’s a welcome development.
So what does ESG investing mean? As with all investments, it is about calculating risk and return. More and more – especially when it comes to climate – companies regard investments in fossil fuels as an increased risk.
“Investors are moving away from polluters,” Blaha told an editorial. “The evidence is clear that it makes sense to consider the climate when making investments, to move away from fossil fuels and towards a carbon neutral impact. Polluters will be more strictly regulated and pose a greater risk. It just makes good economic sense when the market changes.”
The State Board of Investment (SBI) manages state assets and is also responsible for several statewide retirement plans and other investment plans. Recently, the board made formal recommendations that address climate change.
A three-part SBI report on climate change provides evidence that rising global temperatures are changing the level of risk for some investments and recommends that climate change is a critical long-term strategy for protecting investment funds.
“We have the data, we have options and now it’s time to pick a course,” Blaha said. “We have a duty to protect state investment and pension funds for government workers, teachers, nurses and others who depend on us to make wise decisions.”
The roll call of companies that have adopted ESG guidelines includes some of the biggest names: Microsoft, Nike, Accenture, Texas Instruments, Motorola, Hewlett-Packard, Adobe, Apple, Eli Lilly and thousands of others. It is not limited to one sector or type of business. These are all companies looking for strong equity performance and growth. They have found that focusing on ethical, environmental, and socially responsible values can be improvements, not drawbacks.
Billionaire Michael Bloomberg has become a champion for investments that take climate change into account. He founded the Task Force on Climate-Related Financial Disclosures, which has led thousands of companies to voluntarily provide data on emissions and exposure to climate risks.
“These and other companies want to be able to factor climate risk into their investment decisions, and without accurate and reliable data they can’t,” Bloomberg wrote in a piece for Bloomberg News. He added that the Securities and Exchange Commission is in the process of adopting reporting requirements based on the framework its task force has created. He estimates the cost of climate change-induced weather events at more than $100 billion a year. “Justifying for these and other losses is not a social policy,” he wrote. “It is smart investing. Businesses refusing to do this entails high costs for taxpayers.”
But the growing popularity of ESG has caused a strong backlash. States with significant interests in fossil fuels, especially Republican-led states such as Texas, Oklahoma and Florida, have labeled such practices as “investing wakes” and seek to punish such companies.
In Texas, that meant a law banning local governments from doing business with banks that have ESG policies against fossil fuels and, for the record, guns. (Why guns? It’s Texas.) According to a study by the Wharton Business School, that has already cost taxpayers $532 million in additional costs. Why? Cities are now limited in who can underwrite their municipal bonds. This situation was exacerbated after some of the largest insurers in the country exited the Texas market, including JPMorgan Chase, Goldman Sachs, Bank of America and Fidelity.
Blaha, a Democrat who is running for re-election against Republican Ryan Wilson, argues that companies are weighing the impact of climate change not because they are particularly “awake” but because it “makes financial sense.”
Blaha is in favor of the nuanced recommendations in the report commissioned by SIB. “It comes down to three simple things,” she said. “Invest climate-consciously, ultimately aim for a carbon neutral portfolio and the divestment approach as a last resort.”
There are never guarantees in the stock market. But the growing realization that ignoring climate change poses significant risk is long overdue.
— Minneapolis Star Tribune, September 12