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Week 22: An open letter to Florida Governor Ron DeSantis
The climate crisis is becoming a financial crisis in the US. This month, the largest homeowner insurance company in California, State Farm, announced that it would stop selling coverage to homeowners. That’s not just in wildfire zones, but everywhere in the state. Insurance companies are tired of losing money and are raising rates, restricting coverage or pulling out of some areas altogether, making it more expensive for people to live in their homes. This is happening in the US. State Farm, which insures, more homeowners in California than any other company, said it would stop accepting applications for most types of new insurance policies in the state because of “rapidly growing catastrophe exposure.”
And in much of Florida, the state you govern, homeowners are increasingly struggling to buy storm coverage. Most big insurers have pulled out of Florida already, sending homeowners to smaller private companies that are straining to stay in business. This is happening in your state and under your watch. You have called ESG investments an ideological joyride. If anything, what is now happening in the state of Florida is an ideological breakdown. Is this the will of God or the force of nature altered by human activity over the last 250 years? We can have different views, but science presents the facts. Failure to limit the temperature rise could lead to the collapse of life on the planet. There's one conclusion without any uncertainty whatsoever, and that is that a 2.5C global mean surface temperature rise is a disaster for the world, for the US and for Florida.
By excluding ESG and with that particular focus on climate issues in investments, Florida violates its own initiatives, which “require SBA fund managers to only consider maximizing the return on investment on behalf of Florida's retirees.” Prohibiting sustainability from consideration results in inferior performance over any period during the past decade, according to public data available.
Whatever the flaws of ESG investing are, many of which are well documented, there are few signs that the most rewarding trend for money managers worldwide is abating. Mr Governor, ESG is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between companies, employees, customers, suppliers, and communities. This is the true power of capitalism. Stability is especially relevant for state pension funds in the bond market, where the specific needs of retirees need to be matched with consistent income payments and where ESG-related debt in its infancy already outperforms the broader corporate debt market. Sustainability, as measured by the Bloomberg MSCI US Corporate ESG Weighted Total Return Index, provided more than 50 basis points of additional income and appreciation than the Bloomberg US Corporate Bond Index over one, five and 10 years with 4% less volatility. Mr Governor, I wish that people in the great state of Florida also could reap these investment rewards. The largest exchange-traded fund investing in ESG is in the US, the iShares ESG Aware MSCI USA ETF, increased its assets 4,700 times to $24 billion since its inception in 2016 and 80 times the past three years. Investor appetite for ESG, measured by flows of funds into sustainability ETFs, increased 56 times during the past three years. A big reason why ESG is attracting so much investment Mr Governor is because it’s crushing the traditional investment benchmarks. Large Cap ESG Select Index produce a total return (income plus appreciation) of 150% since its inception in 2014. The Russell 3000 gained 136% in the same period. The ESG index appreciated 74% during the past five years, outperforming the rest of the stock market by five percentage points.
Mr Governor, for the sake of the retirees in Florida, for the sake of the US and its future prosperity, consider ESG investments and what they try to achieve as a true power of transformative capitalism, which I believe benefits Florida, the US and the World much more than your current ideological joyride.
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