Portfolio ‘wake-up’ hinges on state of public pensions

In Florida, Governor Ron DeSantis launched an outright attack on ESG in an Aug. 23 press release that accompanied the action by the administrators of the Florida State Board of Trustees. “Corporate power has increasingly been used to impose an ideological agenda on the American people through the perversion of financial investment priorities under the euphemistic banners of environmental, social and corporate governance and diversity, inclusion and equity,” he said.

In July, the Governor announced proposals for the 2023 legislative session that would prohibit the state Board of Directors from considering ESG factors in investments and require SBA fund managers “to only consider maximizing return on investment only on behalf of Florida retirees,” the governor said. says the press release.

Other states have taken different steps to warn public pension plan managers and other state officials.

Last month, Texas Comptroller Glenn Hegar identified BlackRock Inc. as one of 10 financial firms he says are boycotting energy companies.

Mr. Hegar is implementing a 2021 state law that prevents state agencies and public pension funds from investing in such companies.

“The environmental, social and corporate governance movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interests of their shareholders or customers, but instead use their financial clout to advance a social and political agenda shrouded in secrecy,” Mr. Hegar said in an Aug. 24 press release.

The law covers the $199.9 billion Texas Teachers’ Retirement System; $44 billion Texas County and District Retirement System; Texas Permanent Schools Fund of $40 billion; $37 billion Texas Municipal Retirement System; $39.6 billion Texas Employee Retirement System; and the $116 million Texas Emergency Services Retirement System, all based in Austin.

The law also contains a caveat: a state government entity is not affected if it “determines that the requirement would be inconsistent with its fiduciary responsibility with respect to the investment of the entity’s assets or other obligations imposed by law regarding the investment of the entity’s assets.”

In Kentucky, Attorney General Daniel Cameron issued an opinion in May that while “asset owners may pursue a social purpose” to achieve an ESG objective, “investment managers tasked with making investments funds for Kentucky’s public retirement systems must be resolute in their motivation and action.”

Stating that “politics has no place in Kentucky’s public pensions”, Mr. Cameron said that “stakeholder capitalism” and “environmental, social and governance” investment practices that introduce incentives joint ventures in investment decisions are inconsistent with Kentucky trust law. fees owed by investment management companies to Kentucky public pension plans. »

In March, Idaho Governor Brad Little signed the Disfavored State Investments Act, which stated that no public entity engaged in investment activities should consider ESG factors “in a way that could override prudent investor rule. The law, which took effect on July 1, defines a disadvantaged investment as an investment “contrary to public order” of the state “by law, concurrent resolution or decree.”

The law also states that a public entity “serving as a fiduciary to select investment options for investors may offer preferred environmental, social and governance investment alternatives, but such investments will not be necessary and sufficient alternatives must be offered”.

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