The city of Portland, Ore., recently took the policy idea of divesting from unpopular corporate securities to its extreme conclusion: It's getting rid of all corporate investments.

After months of pressure from advocates urging the city to get out of investments in a small group of companies including some big banks, the city finally concluded that it's easier not to even bother trying to agree on which companies are good enough corporate citizens. It's better to take a pass on all of corporate America.

For those elected officials here in Minnesota who are facing calls to sell investments in businesses that are unpopular with a chunk of the voters, please proceed cautiously. Whatever you do, don't let yourself get talked into that kind of conclusion.

This decision to leave a vast capital market wasn't up to any investment pros, of course, who would certainly know that a portfolio of investments in productive businesses always beats government bond returns over time. The pros, in Portland or anywhere else, are focused on making sure the people they are looking out for get the best returns.

No public funds manager has completely free rein to do that, though, with all of them working under formal investment policies that to some degree limit their options. In general there seems to be a bias in these policies toward safety, trying to keep the taxpayers from losing a slug of principal.

The idea behind divestment is to give managers new restrictions, largely based on the business activities of companies that have issued securities like shares or corporate bonds.

It's not a new idea, but lately it has drawn more support as worries about carbon emissions and climate change have grown. There's a group here in Minnesota asking for the Minnesota State Board of Investment to study divesting of fossil fuels investments, hoping the state's big investment management arm one day avoids a list of 200 large holders of oil, gas and coal reserves.

From a conversation with one of the group's leaders, retired state employee Emily Moore, it's clear that they are arguing their case partly on economics, as fossil fuel investments seem to be at risk of a decline in value. That argument may not be persuasive, but at least it's based on financial considerations.

As the Portland case shows, however, once support builds for getting rid of investments based on what someone thinks of the underlying business, it's not all that easy to decide where the line gets drawn on good corporate behavior. Nor is it clear who should make the call on which companies are on the wrong side of it.

Reputations can also turn quickly. Not long ago the big bank Wells Fargo & Co. was a highly respected company. Then it opened a bunch of fake accounts and decided to participate in the project loan that funded the bitterly contested Dakota Access pipeline.

So Wells Fargo routinely was called out in the lengthy divestment debate in Portland. It was one of the first two companies considered by a Portland panel appointed by the City Council called the Socially Responsible Investments Committee.

This group had been asked to look closely at a number of factors including environmental practices before recommending which companies should get put on the city's "Do not buy" investment list.

What's surprising, though, is that oil producers and coal burners didn't dominate the committee's final list of the companies it didn't like. Some got there through their "market dominance," a curious finding since dominating the market is generally an attribute that good investors look for. It's one thing that put Amazon.com on the list.

The construction equipment maker Caterpillar was on it in part for what it builds, including armored bulldozers used by the Israeli military. By the time the committee issued its report last fall it had developed a bill of particulars against each of the nine companies that it recommended for dumping.

Warren Buffett's Berkshire Hathaway and Minneapolis-based U.S. Bancorp were evaluated closely, too, although it's not clear why such highly respected companies would need such scrutiny. "Though the bank has some controversial issues," the committee concluded on U.S. Bank, "there are not enough severe issues related to Council principles to merit a recommendation for inclusion on the DNB List."

When the time came to consider the city's formal investment policy there was a competing proposal that called for the city to make investments using the ratings of MSCI, a well-known producer of ratings and indexes including screens for environmental, social and governance factors, the so-called ESG issues. In Portland more than three dozen activists got up to testify and none of them thought much of the MCSI idea.

At the time of Portland's decision to quit the corporate market altogether, the city had about a third of its cash, or nearly $540 million, invested in corporate bonds. When all that money gets reinvested into lower yielding investments the hit to the city's annual budget will be maybe $4.5 million.

That fact wasn't lost on Portland's new mayor. He had pointed out that voters in Portland have demanded more affordable housing, that something be done to house Portland's large population of homeless and that the city make progress on street repairs.

So he shared some back-of-the-envelope figures, as reported by Oregon Public Broadcasting. This investment decision to get out of corporate securities will cost Portland 285 new units of low-cost housing, 850 wheelchair accessible curb ramps or at least 667 new beds for Portland's homeless.

One would think those facts would have drained away the enthusiasm for any policy that kept corporate securities completely out of the portfolio. Well they didn't. In fact, the vote was unanimous.

Hopefully this approach is something only the voters of Portland have to worry about.

lee.schafer@startribune.com

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