Sustainable Investing is on the Ballot
If you are hoping to retire next year, then climate change probably won’t significantly impact your ability to retire comfortably.
However if you have a longer retirement horizon, then the impacts of climate change on the security of your future will be unavoidable.
Say you want to retire in 25 years and live in a beachside bungalow. If you bought that property now without considering the fact that US coastlines are expected to rise by at least a foot by 2050[1], in 25 years you might end up in an uninsurable home vulnerable to severe and frequent flood damage.
Already, insurers are retreating from regions at risk of natural disasters, and last year Farmers Insurance announced its plans to leave the state of Florida entirely.[2]
Obviously, this would be a bad investment. Yet when it comes to the investments held in retirement plans, the ability to consider the impact of climate will at least partially depend on who occupies the oval office for the next four years.
Assessment of environmental, social, and governance factors (ESG) is important because it can help investors identify well-managed companies, avoid the worst impacts climate change will have on the economy, and take advantage of opportunities arising from a transition to renewable energy. Research consistently shows that companies who take these considerations into account in their growth strategies have the potential to outperform their peers.[3]
At the same time, it is estimated that climate change could shave a staggering 15% off global economic growth, with some companies and industries far worse affected than others.[4]
American workers deserve a secure retirement, which is why the law requires managers of retirement plans to act in the financial best interests of plan members. This underlying fiduciary obligation remained unchanged under both Trump and Biden.[5] However, the way each administration interpreted fiduciary duty differed considerably.
During his first term in office, former president Donald Trump sought to protect the fossil fuel industry by taking a strong stance against ESG investing. His Department of Labor passed rules prohibiting pension and retirement plans from considering any investment factors beyond financial returns.[6]
The more environmentally friendly Biden administration responded by removing these barriers and added new language allowing the consideration of environmental, social and governance factors in retirement plan investments, so long as they had financial relevance.[7]
In the last 4 years, much of the fight over ESG investing has played out at the state level. Politicians and attorneys general in a number of red states have advanced the pro-oil agenda by passing legislation to prohibit state agencies from using ESG criteria in investment decisions. In some cases they have even banned states from doing business with banks and investment firms deemed antagonistic to the fossil fuel industry.
Such regulations protect the interests of oil, gas, and coal companies at the expense of citizens and investors across the country who believe it’s in their own economic best interest to consider the risks posed to their investments by climate change.
While this fight would likely continue under any Democratic administration, Vice-President Harris can be counted on to maintain the Biden-era reforms that allowed fiduciaries to include climate in their assessment of potential retirement investments. A second Trump term on the other hand would almost certainly lead to limitations on investors’ freedom to consider all relevant factors when making investment decisions.
Without significant action today, climate change will inevitably have a negative impact on the economy and on the quality of life of everyday Americans, especially the retirees of tomorrow. It’s already happening. And it’s past time to take reality into account when planning for the future. [8]
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation. Under no circumstances shall LongView be liable for any direct, indirect, special, or consequential damages that result from the use of, or the inability to use, the materials provided. In no event shall LongView Asset Management, LLC have any liability to you for damages, losses, and causes of action for accessing this commentary. Past performance is not indicative of future results. This content not reviewed by FINRA.
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[1] https://sealevel.globalchange.gov/resources/2022-sea-level-rise-technical-report/#slr
[2] https://www.insurancebusinessmag.com/us/news/catastrophe/coastal-properties-at-risk-of-becoming-uninsurable--report-464532.aspx#:~:text=Florida%20stands%20out%20as%20a,much%20as%2040%25%20in%202023.
[3] https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-triple-play-growth-profit-and-sustainability
[4] https://thebulletin.org/2024/05/cost-of-climate-change-comparable-to-economic-damage-caused-by-fighting-a-war/#:~:text=Even%20if%20global%20heating%20was,is%20clear%2C%E2%80%9D%20said%20Wagner.
[5] https://funds-europe.com/fate-of-esg-on-trump-track/
[6] https://www.cbsnews.com/news/trump-administration-retirement-funds-socially-responsible-investing/
[7] https://blog.dol.gov/2022/11/22/allowing-esg-factors-in-retirement-plan-investments
[8] https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-triple-play-growth-profit-and-sustainability