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VIEWPOINT: The Problem with Restricting the Freedom to Invest: It Hurts Delawareans

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Chances are, when it comes to investing your money, you consider quite a few factors when deciding where to put it. Institutional investors, asset managers, and state treasurers, like myself, consider investment risks every day as we work to protect the financial savings of the people who entrust us with their money.

State Treasurer Colleen Davis

My office is responsible for growing and safeguarding the investments and savings of hundreds of thousands of Delawareans — police officers, firefighters, and teachers — who depend on these retirement and stipend funds. This is essential work for state treasurers and other public fiduciary officers across the country.

Yet at both the federal and state levels, there have been growing legislative efforts to restrict the freedom of institutional investors to make decisions about where they invest or which financial professionals they work with. While nothing has surfaced in Delaware, these policies ultimately reduce competition, limit access to high-quality investment managers, and ban institutions from considering the material financial risks related to climate change — including more frequent flooding, increased droughts, and extreme heatwaves. I am unsettled and disappointed by this politically motivated effort by some policymakers to ignore and undermine the responsibilities of investors.

Delawareans’ retirement funds make up roughly half of the state’s $22 billion portfolio of assets, and my office, as well as a network of institutional investors, is legally bound to identify risks that can pose material harm to returns. Climate change is clearly one of them, and ignoring its impacts goes against any financial officer’s fiduciary duty — regardless of whether they’re Democrat or Republican.

But the evolving and ill-considered effort to ban investors and other institutions from making these very considerations suggests there will be a divide between two kinds of states moving forward: those focused on short-sighted and short-term gains, and those focused on long-term beneficial outcomes for all stakeholders. Delaware is proud to be among the latter, which is why I joined forces with dozens of other treasurers and public fiduciary officers to reaffirm our mandate to protect state investments and retirement funds over the long term.

Climate risk is a well-documented material financial risk. We know this all too well. In 2021, Hurricane Ida damaged homes, destroyed businesses, and swept away cars. The flooding covering our state averaged 21-feet, damaging over 1,770 buildings, including 233 homes. Roughly 200 people were rescued from these devastating floodwaters in the Riverside neighborhood, and Brandywine Creek rose to a record-breaking 23.14 feet. The National Hurricane Center estimated that there were roughly $75 billion in total damages across the states affected by Hurricane Ida.

These kinds of climate-fueled disasters are becoming more frequent and intense. In 2022, extreme weather cost the U.S. $165 billion– $13 billion more than in 2021. At this rate, climate change could cost the global economy $178 trillion between now and 2070.

Investors must have the freedom to make decisions that are best for their beneficiaries and shareholders, which include the ability to manage all risks. So, why have several states started inserting politics into financial decision-making by blacklisting firms that account for the clear risk of climate change?

By my read, it is a gross response on behalf of political interests. In particular, we see the policymakers who are most aligned with fossil fuel interests pushing back with their restrictive policies. They don’t want to see change from last century’s ways of doing business.

What’s worse, the states that have embraced these restrictive policies are making taxpayers foot the bill, since reducing the number of institutions states can do business with limits competition in the marketplace and results in higher interest rates. An analysis released by Ceres and As You Sow found taxpayers in six states could have been on the hook for up to $700 million in excess interest payments, if restrictions on sustainable investing had been in place.

The truth is that growing numbers of mainstream investors and companies consider the effects of climate change in their decision making because it is just smart business. They’re not going to stop now. Even amid this pushback, capital market leaders are speaking out to say they will continue to factor all material concerns into decision-making — including more than 350 investors and companies who have signed onto a statement demanding policymakers protect their freedom to invest responsibly.

As investors and asset managers, we have a responsibility to the beneficiaries we serve and a duty to safeguard investments for the future. Rather than restricting decision-making, policymakers should be looking to ensure financial managers have the latitude to consider all material risk factors. This should not be a political or ideological issue. It’s about smart financial management — and for my office and treasurers across the country, that means it’s about stewarding and protecting the financial well-being of our retirees and our taxpayers.

Colleen Davis is the State Treasurer of Delaware

 

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