Late August 2022 Briefing – Thermal coal, Risky fossil fuels, Fiduciary responsibility

The Minnesota Divestment Coalition’s Late August Briefing to the SBI

The late August briefing to the SBI includes 1) A request that the SBI provide an update to the Thermal Coal Resolution of May 2020; 2) Comments on the continuing risky behavior of the fossil fuel industry; and 3) Continuing concerns about the SBI’s fiduciary responsibility to pension holders, taxpayers and the State of Minnesota,

Update on SBI Thermal Coal Investments Requested

The MN Divestment Coalition requests that the SBI provide updated information on its website regarding actions it has taken to divest from thermal coal as required by the May 2020 SBI resolution.

The MN SBI made a commitment dated May 29, 2020 to remove “publicly traded companies which derive 25% or more of their revenue from the extraction and/or production of thermal coal” as authorized investments in the MSBI’s Combined Funds portfolio.  At the August 2020 meeting, Mr. Perry noted that the SBI identified 40 such companies in the investable universe, of which 10 were in the Combined Funds portfolio.  Managers were directed to liquidate out of the position by December 31,2020, with a promise that this listing would be updated on an annual basis.  Minutes of meetings after December 2020 do not mention thermal coal and we have not been able to find annual updates on this matter. Therefore, we request that the SBI provide updated information regarding its thermal coal holdings. 

Risky Behavior of Fossil Fuel Companies

Fossil fuel companies pose serious risks to our pensions, and the SBI should move expeditiously to sell its holdings in these companies while prices are high. Recent news highlights several examples of how these companies have undermined our economy and environment:

  • During the COVID pandemic, Russia and Saudi Arabia manipulated oil markets by flooding the global market with fossil fuels when demand was low, driving American refineries to reduce their operations or go out of business. Now they are reducing their oil and gas production to drive up the price. Since so many refineries have been taken off line, there is not enough capacity to refine American oil and gas, as reported by MPR on June 18.
  •  Fossil fuel companies are making outrageous profits while ordinary Americans are paying inflated prices at the gas pumps.
  • The world continues to reel from unprecedented temperatures, floods and fires that are largely the result of the burning of fossil fuels. 

As our country and countries around the globe embrace the energy economy of solar and wind power and electric vehicles, fossil fuel companies will become stranded assets. SBI should pass a resolution to begin divesting from fossil fuel companies while prices are high, in the same manner that it decided to divest from thermal coal. Minnesota’s future and the health of our pension funds depend on it.

Fiduciary Responsibility to the State of Minnesota

We request that the Board put in place a due diligence process to ensure that private equity investments do not undermine other sectors in our state. 

Almost 25% of SBI funds are invested in private equity companies.  After the SBI signs a contract, it has no control over how the company uses the funds provided. Furthermore, It is exceedingly difficult for the SBI to back out of these contracts, some of which extend for as long as 10 years. These factors argue for extra discretion in making such investment decisions. 


Over the past two years, the SBI has generally approved the Executive Director’s recommendations to invest in private equity companies because of the attractive returns they offer.  Our concern with these approvals is that as members of the Board, you have fiduciary responsibilities that go beyond ensuring that pensioners receive a robust return on their investments.  According to MN statute  356A, https://www.revisor.mn.gov/statutes/cite/356A/pdf  “a fiduciary of a covered pension plan owes a fiduciary duty to the following entities: (1 one) the active and retired members of the plan, who are its beneficiaries; (2) the taxpayers of the state; and (3) the state of Minnesota.” 

At times maximizing a return on pension investments through private equity companies conflicts with your broader fiduciary responsibility to taxpayers and the State of Minnesota.  For example, private equity investments in fossil fuels are contributing to the Climate Crisis that is responsible for the droughts and flooding that are negatively affecting our state’s agricultural productivity and tax receipts from that sector.  So, the SBI cannot fulfill its fiduciary duty by simply focusing on the return of a given investment. 

Private equity companies have been among the main culprits fueling the climate crisis. They have continued investing in fossil fuel companies despite the urgent need to reduce emissions. After buying up fossil fuel assets no one else wanted, they resumed flaring practices in West Africa and ceased capping wells emitting methane in the US.

The SBI has fiduciary responsibilities to the entire state of MN. The examples shared here illustrate why it is important for you to undertake a comprehensive due diligence process BEFORE signing a contract with a private equity firm. In our Feb 2022 Briefing to the SBI, we provided the following example of due diligence criteria that could be applied, using the criteria below, taken from the October 2021 Report from the Private Equity Stakeholder Project:

1. Develop and disclose a plan with clear incremental benchmarks to shift to pollution-free energy portfolios.

2. Commit to no further investment in fossil fuel exploration or operations, in alignment with the IEA (International Energy Agency) Net-Zero 2050 roadmap.

3. Provide a risk management strategy under a 1.5-degree scenario consistent with science-based emission targets as well as scenarios above 1.5 degrees.

4. Disclose all direct and indirect emissions as well as other climate impacts such as spills, accidents, and environmental fines.

5. Provide transparency on political spending and how it aligns with the UN’s PRI (Principles for Responsible Investment).  Investor Expectations on Corporate Climate related political spending by Corporations includes:

  • Corporate and executive political spending – lobbying and campaign contributions
  • Political spending by portfolio companies and their executives
  • Membership in trade associations and how these trade associations’ lobbying positions align with the goals of the Paris Agreement.

It is critical to the welfare of our state that the SBI adopt such a due diligence process before making future private equity investments.The Minnesota Divestment Coalition’s Late August Briefing to the SBI

The late August briefing to the SBI includes 1) A request that the SBI provide an update to the Thermal Coal Resolution of May 2020; 2) Comments on the continuing risky behavior of the fossil fuel industry; and 3) Continuing concerns about the SBI’s fiduciary responsibility to pension holders, taxpayers and the State of Minnesota,

Update on SBI Thermal Coal Investments Requested

The MN Divestment Coalition requests that the SBI provide updated information on its website regarding actions it has taken to divest from thermal coal as required by the May 2020 SBI resolution.

 

The MN SBI made a commitment dated May 29, 2020 to remove “publicly traded companies which derive 25% or more of their revenue from the extraction and/or production of thermal coal” as authorized investments in the MSBI’s Combined Funds portfolio.  At the August 2020 meeting, Mr. Perry noted that the SBI identified 40 such companies in the investable universe, of which 10 were in the Combined Funds portfolio.  Managers were directed to liquidate out of the position by December 31,2020, with a promise that this listing would be updated on an annual basis.  Minutes of meetings after December 2020 do not mention thermal coal and we have not been able to find annual updates on this matter. Therefore, we request that the SBI provide updated information regarding its thermal coal holdings. 

Risky Behavior of Fossil Fuel Companies

Fossil fuel companies pose serious risks to our pensions, and the SBI should move expeditiously to sell its holdings in these companies while prices are high. Recent news highlights several examples of how these companies have undermined our economy and environment:

      During the COVID pandemic, Russia and Saudi Arabia manipulated oil markets by flooding the global market with fossil fuels when demand was low, driving American refineries to reduce their operations or go out of business. Now they are reducing their oil and gas production to drive up the price. Since so many refineries have been taken off line, there is not enough capacity to refine American oil and gas, as reported by MPR on June 18.

       Fossil fuel companies are making outrageous profits while ordinary Americans are paying inflated prices at the gas pumps.

      The world continues to reel from unprecedented temperatures, floods and fires that are largely the result of the burning of fossil fuels. 

As our country and countries around the globe embrace the energy economy of solar and wind power and electric vehicles, fossil fuel companies will become stranded assets. SBI should pass a resolution to begin divesting from fossil fuel companies while prices are high, in the same manner that it decided to divest from thermal coal. Minnesota’s future and the health of our pension funds depend on it.

Fiduciary Responsibility to the State of Minnesota

We request that the Board put in place a due diligence process to ensure that private equity investments do not undermine other sectors in our state. 

Almost 25% of SBI funds are invested in private equity companies.  After the SBI signs a contract, it has no control over how the company uses the funds provided. Furthermore, It is exceedingly difficult for the SBI to back out of these contracts, some of which extend for as long as 10 years. These factors argue for extra discretion in making such investment decisions. 

Over the past two years, the SBI has generally approved the Executive Director’s recommendations to invest in private equity companies because of the attractive returns they offer.  Our concern with these approvals is that as members of the Board, you have fiduciary responsibilities that go beyond ensuring that pensioners receive a robust return on their investments.  According to MN statute  356A, https://www.revisor.mn.gov/statutes/cite/356A/pdf  “a fiduciary of a covered pension plan owes a fiduciary duty to the following entities: (1 one) the active and retired members of the plan, who are its beneficiaries; (2) the taxpayers of the state; and (3) the state of Minnesota.” 

At times maximizing a return on pension investments through private equity companies conflicts with your broader fiduciary responsibility to taxpayers and the State of Minnesota.  For example, private equity investments in fossil fuels are contributing to the Climate Crisis that is responsible for the droughts and flooding that are negatively affecting our state’s agricultural productivity and tax receipts from that sector.  So, the SBI cannot fulfill its fiduciary duty by simply focusing on the return of a given investment. 

Private equity companies have been among the main culprits fueling the climate crisis. They have continued investing in fossil fuel companies despite the urgent need to reduce emissions. After buying up fossil fuel assets no one else wanted, they resumed flaring practices in West Africa and ceased capping wells emitting methane in the US.

 

The SBI has fiduciary responsibilities to the entire state of MN. The examples shared here illustrate why it is important for you to undertake a comprehensive due diligence process BEFORE signing a contract with a private equity firm. In our Feb 2022 Briefing to the SBI, we provided the following example of due diligence criteria that could be applied, using the criteria below, taken from the October 2021 Report from the Private Equity Stakeholder Project:

 

1. Develop and disclose a plan with clear incremental benchmarks to shift to pollution-free energy portfolios.

2. Commit to no further investment in fossil fuel exploration or operations, in alignment with the IEA (International Energy Agency) Net-Zero 2050 roadmap.

3. Provide a risk management strategy under a 1.5-degree scenario consistent with science-based emission targets as well as scenarios above 1.5 degrees.

4. Disclose all direct and indirect emissions as well as other climate impacts such as spills, accidents, and environmental fines.

5. Provide transparency on political spending and how it aligns with the UN’s PRI (Principles for Responsible Investment).  Investor Expectations on Corporate Climate related political spending by Corporations includes:

      Corporate and executive political spending – lobbying and campaign contributions

      Political spending by portfolio companies and their executives

      Membership in trade associations and how these trade associations’ lobbying positions align with the goals of the Paris Agreement.

It is critical to the welfare of our state that the SBI adopt such a due diligence process before making future private equity investments.