Scenario Unfolding:
Continued fossil fuel investing amid greenwashing leads to market crash
This briefing focuses on (1) A statement from the SEC Commissioner regarding corporations misleading shareholders about their climate actions; (2) the findings of the Climate Safe Pensions Report, and (3) a Bloomberg News article about “Wall Street’s $22 Trillion Carbon Time Bomb.”
1) SEC Commissioner criticizes hypocritical behavior of corporations regarding their pledges to reduce emissions.
Caroline Crenshaw, Commissioner at the Securities and Exchange Commission (SEC) wants to address the growing problem of corporations that publicly promise their shareholders they will curb emissions, while behind closed doors they pursue policies that have the opposite effect and continue to invest in projects that increase emissions. Crenshaw called for the development of accurate and reliable metrics to monitor companies’ stated commitments so that shareholders can hold them accountable for their role in the climate crisis. SEC Commissioner Crenshaw has also suggested the possibility of creating incentives for companies to achieve ESG (Environmental, Social and Governance) targets. Former White House Chief of Staff John Podesta said disclosure of GHG (greenhouse gas) emissions must be required along with mandatory rules limiting emissions.
2) The Quiet Culprit: Pension Fund Bankrolling the Climate Crisis
In December a groundbreaking report[1] released from The Climate Safe Pensions Network found that just 14 U.S. pension funds (including Minnesota’s) finance fossil fuels to the tune of $81.6 billion. Institutional investors such as pension funds are the great enablers of climate change. These investments are not only bad for the climate but financially unwise. Many of these companies are actively expanding fossil fuel infrastructure, from tar sands and gas pipelines, to fracking wells and offshore drilling – even digging new coal mines and building new coal-fired power plants.
The report analyzed the asset listings of the 14 funds and their exposure to fossil fuels. When companies supporting fossil fuel producers (such as Enbridge), utilities and private equity investments are included, the Minnesota pension fund has over $6 billion invested in fossil-fuel related industries. This, despite the fact that the fossil fuel sector of the financial markets has been contracting for years. Among the ten sectors on the S&P 500 index, the total value of this sector has plummeted from 28% of the total to 3% since 1980. The report details Minnesota’s fossil fuel investments in the table below:
Breakout of Minnesota State Board of Investments by Category – As of 6/30/2020
| Group 1 – Fossil Fuel Production | $1,691,711,625 |
| Group 2 – Support[2] | $928,847,969 |
| Group 3 – Utility | $1,578,038,266 |
| Group 4 – More Fossil Fuels[3] | $1,814,169,407 |
| Total Fossil Fuel Investments | $6,012,767,267 |
Top Fossil Fuel Investments
| Group 1 Fossil Fuel Production | Exxon | $295,890,190 |
| Merite Energy | $255,034,837 | |
| Chevron | $164,387,679 | |
| BHP | 88,846,635 | |
| Shell | 86,375,141 | |
| Group 2 Support | Kinder Morgan | $53,969,422 |
| Phillips 66 | $48,365,318 | |
| Williams | $47,007,200 | |
| Marathon Petroleum | $34,599,431 | |
| Enbridge | $33,289,440 | |
| MN Pension Fund Exposure to Thermal Coal Related Companies | $1,529,694,874 |
To address this precarious financial and environmental situation, the Minnesota Divestment Coalition calls upon the SBI to take the following actions with all due urgency:
1. Divest from and stop all financing of coal, oil, and gas companies and assets. All pension funds must align their policy, regulatory positions, and political expenditures with this commitment.
2. Invest in climate solutions, doubling to 10 percent by 2030, including investments in renewable energy systems, universal energy access, and a just transition to renewables for communities and workers.
3) The bottom line of the Bloomberg Economic News 11/24/21 article “Wall Street’s $22 Trillion Carbon Time Bomb” is that investment holdings in the fossil fuel sector are financially unsafe. A Wall Street carbon bubble is headed for a crash that will devastate the world economy far beyond the huge effects of the subprime mortgage global financial crisis of 2007-08. The root causes of the impending crisis are decisions made by financial institutions all over the world, including the MN State Board of Investment, businesses, and banks. The article includes these examples:
1. While claiming to be committed to net zero carbon, global banks have been investing BIG[4] in big oil. Chase Bank has underwritten some $2.5 billion in bond deals for companies like Gazprom PJSC and Continental Resources, Inc., equivalent to the same period in previous years, while Wells Fargo has doubled the amount of money it’s handing over to the fossil fuel companies.
2. Blackrock, the world’s largest asset manager, plans to lead a group that will invest $15.5 billion in Saudi Arabia’s natural-gas pipelines as the kingdom, in the words of Bloomberg News, “opens up more to foreign companies and looks to fund a huge increase in fossil-fuel production.”
3. Exxon released news of more greenwashing, promising to reduce emissions 20% by 2030. But actually, they only promised to reduce “Scope 1 and Scope 2 emissions” by 20% by 2030, which is to say the emissions from their operations, not their product.
Loans and investments are fueling destruction of the planet and our economy. When the predicted bottom drops out of fossil fuel industries those assets will be stranded.
The fossil fuel industries, like the mortgage industry in 2007, are likely to default on the huge loans they owe. The domino effect of that huge deficit will land on all of us, like the mortgage crisis, only worse, since the amount of exposure to fossil fuel investments is so much bigger at $22 Trillion.
[1] https://climatesafepensions.org/wp-content/uploads/2021/12/FINAL-CSPN-The-quiet-culprit-pensions-report-.pdf
[2] Support – Oilfield services/equipment companies, refiners, pipeline and other
midstream companies.
[3] More Fossil Fuels – Holdings in companies with obvious fossil fuel interests and actions not
fitting easily into groups 1-3. Holdings in fossil fuel energy private equity
funds are assigned here.
[4] https://www.bloomberg.com/news/articles/2021-12-06/global-banks-hold-fast-to-fossil-fuels-as-climate-pressure-grows
TO THE STATE BOARD OF INVESTMENT