Editorial Recap: Climate Change and Investments in Minnesota

Posted 8:50 p.m. on Friday, September 16, 2022

Minnesota, like many businesses, would be foolish to ignore the risks.

Minnesota Auditor Julie Blaha is pushing for the state to adopt what’s known as ESG investing guidelines, short for Environmental, Social, Governance. Slowly, more companies of all sizes have begun to adopt these same principles to guide their investment portfolios. This is a welcome development.

So what does ESG investing mean? Like all investments, it is a matter of calculating risk and return. Increasingly, especially when it comes to climate, companies view fossil fuel investments as higher risk.

“Investors are moving away from polluters,” Blaha told a columnist. “The evidence is clear that it makes sense to factor climate into investments, move away from fossil fuels and achieve net zero carbon impact. Polluters will be more heavily regulated and pose greater risk. It just makes good economic sense as the market evolves.

The State Board of Investment (SBI) manages state assets and is also responsible for several statewide pension systems and other investment plans. Recently, the council presented formal recommendations that respond to climate change.

A three-part SBI report on climate change presents evidence that rising global temperatures are changing the level of risk of some investments and recommends that factoring in climate change is a key long-term strategy to protect investment funds. ‘investment.

“We have the data, we have options and now is the time to choose a course of action,” Blaha said. “We have an obligation to protect state investments and the pension funds of civil servants, teachers, nurses and others who depend on us to make sound 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 more. It is not limited to one sector or one type of business. These are all companies looking for strong stock market performance and growth. They found that focusing on ethical, environmental and socially responsible values ​​can be an improvement, not a disadvantage.

Billionaire Michael Bloomberg has become a champion of investments that take into account climate change. 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 companies and others want to be able to incorporate climate risk into their investment decisions, and without accurate and reliable data, they cannot,” Bloomberg wrote in an article for Bloomberg News. He added that the Securities and Exchange Commission is in the process of adopting reporting requirements based on the framework his task force created. He estimates the cost of weather events linked to climate change at more than $100 billion a year. “Accounting these and other losses is not social policy,” he wrote. “It’s a smart investment. Refusing to allow businesses to do so has significant costs for taxpayers.

But the growing popularity of ESG has triggered a violent backlash. States with large fossil fuel interests, especially Republican-led states like Texas, Oklahoma and Florida, have called the practices “woke investing” and aim to punish these companies.

In Texas, this has resulted in a law prohibiting local governments from doing business with banks that have ESG policies against fossil fuels and, for good measure, guns. (Why guns? It’s in Texas.) According to a Wharton Business School study, it’s already cost taxpayers $532 million in additional costs. Why? Cities are now restricted as to who can underwrite their municipal bonds. This situation was exacerbated after some of the country’s biggest underwriters left the Texas market, including JPMorgan Chase, Goldman Sachs, Bank of America and Fidelity.

Blaha, a Democrat running for re-election against Republican Ryan Wilson, argues that companies aren’t weighing the impact of climate change because they’re particularly “woke,” but rather because it “makes good financial sense.”

Blaha welcomes the nuanced recommendations of the report commissioned by the SIB. “It comes down to three simple things,” she said. “Take a climate-conscious approach to investing, ultimately aim for a net-zero carbon portfolio and, as a last resort, the divestment approach.”

There are no guarantees in the stock market, ever. But the growing awareness that ignoring climate change carries considerable risks is long overdue.

Minneapolis Star Tribune, September 12