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On June 1st, the Washington Examiner published an op-ed by ATR Federal Affairs Manager Bryan Bashur. The piece discusses how states are fighting to remove environmental, social, and governance investments from pension fund returns, while the Biden administration is fully embracing woke capital.
The op-ed begins by highlighting the different actions states are taking to remove politics from retirement funds:
Last year, Texas made the first move to remove politics from state workers’ retirement money. It introduced a law to prohibit state pensions from investing in or contracting with financial firms that boycott investment in oil and gas companies. Pursuant to the requirements of the law, the Texas Comptroller must keep track of financial firms that “boycott energy companies.” Over a specified period of time, state government agencies must “sell, redeem, divest, or withdraw all publicly traded securities” from the boycotting financial firm. The law provides exceptions for state governmental agencies to continue investing if they determine they will suffer losses from the divestment.
West Virginia and Arkansas have also removed assets from BlackRock’s management, while Utah’s state treasurer has taken a stance against S&P Global’s arbitrary environmental, social, and governance ratings. The American Legislative Exchange Council has also designed a framework for states to adopt laws to ensure that investment advisers are maximizing pension fund returns.
In Kentucky, Attorney General Daniel Cameron wrote an opinion arguing that ESG investing is not in line with state law. He said a fiduciary “must have a single-minded purpose in the returns on their beneficiaries’ investments.” Like the Employee Retirement Income Security Act, Kentucky state law requires investment firms to manage funds “solely in the interest of the members and beneficiaries [and for the] exclusive purpose of providing benefits to members and beneficiaries and paying reasonable expenses of administering the system.”
The op-ed also mentions how ESG investments are more expensive than traditional investments, limiting returns for investors:
Investment managers are paying unreasonable expenses for ESG funds. An article from the Financial Times pointed out that “investors in sustainable funds pay a premium” compared to conventional peers.
The piece continues by explaining how the Biden administration wants to ensure that ESG investing is mainstream:
However, at the federal level, the Securities and Exchange Commission is embracing climate disclosures and ESG investing. One SEC rule issued in March outlines onerous requirements that would require companies to disclose their own greenhouse gas emissions and the emissions of their clients and suppliers. A second rule enhances ESG disclosures to encourage more investment in funds that “consider environmental factors.”
The op-ed concludes that ESG investing prioritizes nonpecuniary factors over maximizing returns for retirees:
Emphasis on socially responsible investing puts retirement investments at risk. ESG funds are not immune to market shifts, and they are reducing retirees’ nest eggs. States are on the right path to ensuring investment managers focus on financial performance and exclude factors that harm pension returns. To conform with the law, investment managers need to ensure pension funds are maximizing returns by removing ancillary and nonpecuniary investment decision-making from the equation.
Click here to read the full op-ed.