Kevin Stocklin at the American Conservative writes on the use of so-called “ESG” in state pension funds. He explains,
State pension fund managers who have declared that they will include environmental and social justice goals in their investment decisions collectively control more than $3 trillion in retirement assets and include the five largest public pension plans in the U.S. Among them are The California Public Employees Retirement System (CalPERS), California State Teachers Retirement System (CalSTRS), the Teachers Retirement System of Texas, New York City pension funds, New York State Common Retirement Fund, Maryland State Retirement and Pension System, and the New York State Teachers Retirement System.
These efforts have been encouraged and facilitated by large asset management firms like BlackRock, State Street, and Vanguard. BlackRock, which alone controls more than $10 trillion in assets, has been at the forefront of ESG investing, creating lucrative actively managed funds and selling them to state pensions and other smaller investors alike. And, as Stocklin explains, because ESG funds are actively managed, they carry higher fees than passively managed index funds and have been quite profitable for large asset managers.
But recent work has found that “ESG funds appear to underperform financially.” Boyden Gray & Associates partner Jonathan Berry explained that this has lead state officials to question what they see as a misappropriation of public money, and whether climate and social investing is actually delivering any benefit in return.
“States are recognizing that the financial system is being weaponized against industries that are the life blood of a lot of heartland states,” said Jonathan Berry, former regulatory head at the Department of Labor and a partner at Boyden Gray. “Pension plan proxy votes are often being used against both the economic and political interests of a lot of government workers.”
For retirement funds, Berry continued, “there is already a single ESG goal baked into the law: the social goal of protecting retirement security. That is an incredibly important social goal.”
The full American Conservative article, entitled State Pension Funds Gamble Workers’ Retirement On ESG, is available here.