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How Alaska Permanent Fund investment policies fail to consider the changing world

  • Author: Charles Wohlforth
    | Opinion
  • Updated: May 24, 2018
  • Published May 24, 2018

I thought I would see the Alaska Permanent Fund consider environmental and social issues as part of its investment policies at a meeting Wednesday. What I saw instead was how mediocrity and ideology hold back our state.

Wall Street experts briefed the fund's board of trustees, making an overwhelming case for the profitability of investment decisions made partly on the basis of the good of the world.

More than 80 percent of similar funds already consider environmental, social and governance investment factors or are going in that direction, according to a Morgan Stanley representative who spoke.

Data show that companies that excel in addressing long-term impact on society also make more money over the long term.

Investors using these factors most commonly consider climate change. They employ sophisticated rating systems to favor companies reducing their carbon emissions, advancing renewable energy projects, avoiding climate consequences, and the like.

A representative from investment manager BlackRock showed how companies addressing those issues have gained value while those ignoring them have not done as well from 2012 to 2016.

"That's actually a consistent predictor of over-performance," BlackRock's Brian Deese told the board.

Companies reducing carbon emissions, treating employees fairly and otherwise being good corporate citizens tend to be more efficient, well-run, and oriented to the future, the experts said.

These companies also pose less risk for investors. Being a bad guy can suddenly crash your stock. Examples abound, including Volkswagen's emissions cheating or Exxon or BP's huge oil spills.

At one time, investors thought considering social issues meant giving up returns. Now it is seen as a way to make money and avoid losing it.

Companies preparing for a post-oil world are good bets.

In some countries, electricity from wind energy has become less expensive than from natural gas. Prices are dropping rapidly for batteries that run electric cars. Companies that don't adapt could end up like buggy whip manufacturers trying to compete with Henry Ford.

"Disruption is happening," said John Goldstein of Goldman Sachs. "There is important work to be done. The world is changing."

Except in Alaska.

The fund's board of trustees is made up of five white men and a one white woman. Gray hair abounds.

The group looks like a hold-over from a previous generation, before Native women ran some of Alaska's largest companies and before Anchorage had some of the nation's most diverse schools.

And it can also look like a panel of mannequins, as one frequent attendee observed. Members often sit and don't say anything.

After a dynamic and fascinating presentation by the three Wall Street experts on social investing, a few board members mumbled barely audible remarks. What could be heard added up to a lack of interest.

Chairman Bill Moran said the social and environmental part of investing probably don't need to be considered, because companies with good governance will make the right decisions.

In reality, I believe, Moran, a banker, didn't want to talk about climate change or fossil fuels. After all, he said, the Permanent Fund started out as oil money.

"Every last cent of the $65 billion is a financial derivative of fossil fuel interests," Moran said.

Deese, of BlackRock, responded by asking, "Do you want to reduce your exposure to oil prices?"

Deese formerly advised President Barack Obama on climate policy and helped lead his Alaska trip.

He said Norway's sovereign wealth fund, now many times larger than Alaska's, and also oil-spawned, is reducing its fossil fuel investments.

Rick Steiner told me the Norwegians contacted him while screening an oil company accused of bad environmental practices and corruption. He said Norway's fund excludes stocks in such companies, as well as tobacco companies and nuclear weapon manufacturers.

Steiner said Alaska's fund invests in most of the 155 companies the Norwegians exclude.

At a coffee shop after the meeting, Steiner couldn't stop smiling, even though the board had thrown cold water on the idea of social investing. He has been pushing this for 25 years and enjoyed hearing the New York hot-shots echo his talking points.

Steiner became an international environmental activist after the 1989 Exxon Valdez oil spill. Outside Alaska, his advice is sought. Here, he is regarded as a gadfly. He was hounded out of his job at the University of Alaska in 2009 after questioning pro-oil bias at a university meeting.

I didn't always support his quest for social investing at the Permanent Fund.

The fund's founding director, the late Dave Rose, with whom I wrote a book about the fund, said avoiding politics maintained Alaskans' confidence in its management. Using investments to influence others would endanger public trust in the fund as an institution.

Angela Rodell, the fund's current head, said its staff doesn't even vote proxies in the companies it owns. It lets hired outside managers vote them as they see fit.

But Rodell invited in the experts who came Wednesday. They all advised the board to create an explicit policy on using environmental, social and governance factors for financial reasons.

"These are factors that our peers are embedding in their investment policies around the world," Rodell said. "You have to have the discussion, from a best-practices point of view."

Unfortunately, Alaska remains the kind of backwater where thinking about a future of carbon reduction and renewable energy remains controversial.

Oil has run our state for 40 years. The suits on the Permanent Fund trustee board are big fish in this small, stagnant pond. Maybe they can't see beyond its edge.

I hate to be pessimistic about our state, but the main thing we've learned in the economic crisis of the last three years is that we're resistant to change. An inability to envision a different future is woven through our politics and economy.

Look what happened in the Alaska Legislature over the last three years. The fiscal plan it adopted is to scrape by on reduced oil revenues and investment earnings while spending down savings, all in hopes the good old days come back. There is no plan B.

The Permanent Fund is helping Alaska avoid change. And the fund looks unlikely to change, either.

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