The Yazoo River in Mississippi after flooding, ca. 2000
Last month Mindy Lubber, president and CEO of Ceres, published an op-ed denouncing the current effort by certain state governments to undermine the business operations of companies that seek to minimize their risks associated with climate change and water scarcity.
Since the publication of the op-ed, Florida Gov. Ron DeSantis passed a resolution prohibiting the state’s pension fund from considering environmental, social and governance (ESG) issues when making decisions about investments. He joined a growing number of state government officials looking to meddle in the free market.
Why are a growing number of state officials looking to curb businesses’ ability to make investment decisions based on climate risk? “Sadly, they’re turning straight economic issues into politics, and it’s bad for the economy," Lubber told TriplePundit. "Addressing climate risk is economic. Water shortages are a material risk. So, when people are saying that integrating climate risk into economic analysis, it has to be political.”
The list of states implementing or considering anti-ESG legislation is growing. “Texas, Florida, and West Virginia are egregious examples, and they’re coming at it in different ways," Lubber noted. "Some are suggesting pension funds cannot be invested in anything acting on climate. Some are going after ratings agencies. Some are going after [BlackRock CEO] Larry Fink, because his analysts look at the implications of climate risk and they make decisions based on those numbers. And finally, some attorneys general are even suggesting that because investors are working together to address climate change that they are behaving in a manner that is collusionary. These are serious roadblocks that get in the way of addressing real climate peril.”
Though the backlash to ESG investment is fairly recent, some states are already beginning to see an economic fallout from their attempts to tamper with the free market. “In Texas, lawmakers told five of the largest bond underwriters that they couldn’t do business there because they were boycotting fossil fuels," Lubber told us. "The truth was, they had not boycotted. Perhaps they took coal out of their portfolio or recognized climate change as a material risk, but they did not boycott fossil fuels. This decision caused Texas to go with a more expensive and less experienced underwriter, and now it is going to cost the state millions more because their assumptions were based on faulty data.”
The economic impacts of climate change can be catastrophic. “Telling analysts not to consider climate risk or water shortage risk is skewing the markets in unfortunate ways that will not get good results," Lubber said. "Levi Strauss lost 3 percent of share value when cotton crops died. Due to the drought in California, many farms could only operate at a 50 percent capacity. Thousands of workers were laid off, and grocery stores had to charge more to the consumer. We were not prepared.”
While the economic impact of climate risk is both grave and severe, Lubber also emphasized that making climate-smart business decisions is a moral imperative. “We are building a world for our children that is unfathomably bad," she told us. "If there was a bus coming at our kids, we would jump in front of that bus. There is a bus. It’s hitting now. The droughts are now. The floods are now.”
She went on: “This is about economics, and this is about morality. Losing $110 billion due to climate disasters is economic, but look at the floods in Pakistan. That is about their humanity, as well as economics. Thousands of people were killed. People lost homes and businesses today. They lost their chance at an economic future. This is about our shared humanity and our future and our planetary limitations.”
Corporate leaders must address their impact immediately. Lubber said, “Expectations have risen. Net-zero by 2040 is no longer good enough. Corporate goals have got to be grounded in explicit plans with explicit metrics and accountability, and corporate leaders should stand up and make the case that politics has no place in their economic analysis.”
Investors also have a key role in the future of climate-smart finance. “Investors are excellent spokespeople because they want the companies to thrive and do well," Lubber explained. "When they meet with companies and ask them to manage climate and water risk and ask for a plan, the whole intent is to make the companies stronger, richer and do well over the long term.”
While individual corporations moving toward climate-smart business strategies is laudable, Lubber said, “The reality is that we cannot solve this problem without moving at an entirely different scale and pace. It’s too slow to do without policy. The Inflation Reduction Act was a great success. We are also working with the [U.S. Securities and Exchange Commission (SEC)] on a new rule, because companies must disclose their climate risk. We have to have good policy that gets everyone to a net zero future.”
Editor: Additional perspective from Mindy Lubber is available on Forbes.
Image credit: Justin Wilkens via Unsplash
Mary Riddle is a writer and sustainability consultant based in Florence, Italy. As a former farmer and farm educator, she is passionate about regenerative agriculture and sustainable food systems. Currently, she and her husband also own and operate Italy in Season, a subscription box company with a mission to support small-scale Italian artisans and traditional craftsmanship.
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