FOR IMMEDIATE RELEASE: ESG Investing for Public Pensions: Does It Add Financial Value?

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ESG Investing for Public Pensions – Does It Add Financial Value?

Former Connecticut Treasurer and IPFI President, Christopher Burnham, discusses the current state of the pension system with other experts, focusing on the increased use of ESG investment.

Washington, DC – The Institute for Pension Fund Integrity (IPFI) released its latest research on Tuesday, September 25, 2018. In the wake of the Trump Administration’s renewed guidance on environment, social, and governance (ESG) investing in the April 2018 Department of Labor Field Bulletin, IPFI felt it important to analyze the impact of ESG investing on public pensions. While the DOL guidance applies to private sector pensions, ESG investing is growing in popularity in both the private and public sectors, and it is important to understand the role it plays for public pensions.

Public pensions across the country face more than $6 trillion dollars in unfunded liabilities. Therefore, while some investing strategies are seen as more popular than others, it’s important for public pensions to focus on the returns gained to begin closing the gap. In the latest research by IPFI, the organization details how ESG investing differs in the public sector versus in the private sector. ESG has shown to add value to private investments, but in the public sector it ultimately comes down to the question of if ESG investments add financial value. Much of the research is still undecided on the impact of ESG investing on public pensions given the propensity for ESG investments to be made based on political, not financial, decisions. In the public sector, investment decisions should never be made based on the political impact of an investment.

Christopher Burnham, President of IPFI, recently discussed this new research at a panel discussion hosted by the Pepperdine University School of Public Policy. He joined other pensions experts to discuss this and other challenges facing pensions. Other participants included:

  • Kathleen Kennedy Townsend, Director of Retirement Security at the Economic Policy Institute
  • Wayne Winegarden, Senior Fellow in Business and Economics at the Pacific Research Institute
  • Michael Belsky, Executive Director of the Center for Municipal Financial at Harris School of Public Policy at University of Chicago
  • Joshua Gotbaum, Guest Scholar, Economic Studies at Brookings Institute

At the panel, Mr. Burnham said, “ESG investing is valuable when it adds bottom-line performance to a pension. But it’s not the role of our public pension fiduciaries to make decisions based on what they think is good for society. Instead, they must make investment decisions based on one factor, and one factor only: does it add alpha?” This thinking supports IPFI’s other efforts given its goal to keep politics out of the management of public pension funds.

This research and discussion comes as we reflect on the 10 years since the Great Recession. Considering that public pensions were almost 90% funded before the Recession and on average are now 68% funded, the impact of all investment decisions, whether ESG or otherwise, will be felt by retirees for decades to come.

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The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer Christopher B. Burnham.

 

Divestment: The Impact of Political Decisions on Public Pensions

Public pensions are increasingly being politicized and used as a means to affect social or political change. These actions act directly against the fiduciary responsibility that fund managers have to their plan beneficiaries. One of the most common tools used in these cases is divestment, or stripping plans of investments deemed to be against a social or political goal. Public pensions at all levels across the country are facing calls to divest of everything from fossil fuels to tobacco to private prisons and other industries.

At the forefront of the divestment movement are Mayor Bill de Blasio and Comptroller Scott Stringer of New York City. It has been one year since Mayor de Blasio announced that NYC would divest from fossil fuels within the next five years. Furthering his efforts to strip New York City’s five pension plans of fossil fuel stocks, the city issued a request for information (RFI) to gather public input to inform their divestment plans. What has resulted is a mixed bag, with some stark opposition to the plan, considering that the cost would be detrimental to the retirees. In response to the RFI, IPFI provided a report detailing the costs, ineffectiveness, and inherently wrong nature of the City’s plan to divest. Subsequently, in December 2018, the New York City’s Comptroller issued a request for proposals (RFP) to support the city’s intended divestment strategy for three of the city’s five public pension funds. Proposals are due by February 8, 2019, and the contract is reported to begin in December 2019. While IPFI as an organization steadfastly opposes any plan that politicizes a public pension fund, the issue of divestment requires a closer look, particularly in light of divestment’s costly effects on pensioners and their retirement savings. The public deserves to know the facts about this misguided strategy.

Through a close analysis of academic research and case studies, we explain the inherent problem of divestment in public pension funds.

Full White Paper Available for Download here:

Divestment: The Impact of Political Decisions on Public Pensions

Press Release: Divestment- The Impact of Political Decisions on Public Pensions

FOR IMMEDIATE RELEASE

January 9, 2019

New White Paper: Divestment – The Impact of Political Decisions on Public Pensions

A year after New York City officials called for the divestment of city pension funds from fossil fuels, divestment remains a costly and dangerous strategy. New research from IPFI details the negative impact of divestment.

Arlington, VA – The Institute for Pension Fund Integrity (IPFI) has been consistent in its view that public pension funds should be immune from political gamesmanship. However, divestment movements around the country continue to pressure plan managers to politicize their funds. Divestment has repeatedly been shown to be a harmful and ultimately ineffective tool, and the latest white paper from IPFI demonstrates this clearly. Divestment serves only as a messaging device for politicians to feign action to their supporters, and causes real harm to retirees.

Even though divestment has been shown time and again to be detrimental to the financial wellbeing of pension funds, this has not stopped New York City Mayor Bill de Blasio and Comptroller Scott Stringer from moving forward with their plan to divest city assets from energy companies. In December 2018, the comptroller’s office issued a Request for Proposals to support the city’s intended divestment strategy for three of the city’s five public pension funds. Proposals are due by February 8, 2019.  This move is meant to push forward their political agenda and will only continue to weaken the already fragile financial stability of New York City pension funds, which are currently facing billions of dollars in unfunded liabilities.

When New York City first published their Request for Information to inform their divestment plans, IPFI submitted a report detailing the argument against divestment. Unfortunately, the city disregarded our opinion as well as the opinions of the New York City Police Pension Fund and New York City Fire Pension Fund who have also voiced their opposition to the move. As the city continues to move forward with its plans, IPFI will continue to push back against politicians who forget their duties as fiduciaries.

“Hundreds of thousands of New Yorkers depend on the city to ensure their financial security and deserve a secure retirement. By moving forward with their plans for divestment, Mayor de Blasio and Comptroller Stringer are using these retirees as pawns in their political games,” said IPFI Chairman and former Connecticut State Treasurer, Christopher Burnham. “de Blasio and Stringer are abdicating their fiduciary responsibility by furthering their divestment scheme, and it’s time that retirees demand that they focus on growing returns – not playing politics.”

In the hope of preventing other cities from travelling down the perilous path of political divestment, IPFI’s new white paper details the various arguments against divestment. The paper explains why divestment is so harmful to financial performance and highlights several case studies that illustrate how acts of divestment have had serious negative impacts on the financial stability of public pension plans.

To learn more about the pitfalls of divestment, read our latest white paper and view other research at www.ipfiusa.org.

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The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

IPFI Applauds Putting Fiduciary Responsibility Over Politics

FOR IMMEDIATE RELEASE
November 28, 2018

IPFI Applauds Putting Fiduciary Responsibility Over Politics

IPFI staunchly opposes politically motivated divestment and applauds the Canada Pension Plan Investment Board for refusing to give in to political pressure. 

Washington, DC – The Institute for Pension Fund Integrity (IPFI) would like to congratulate the Canada Pension Plan Investment Board (CPPIB) for refusing to divest its assets from private prison companies. The move comes after political organizers recently put pressure on the board to remove its investments as a form of protest against the immigration policies of the United States Government.

IPFI is strongly against politically motivated divestment. Investment decisions should be made solely on the basis of financial performance and risk, and should never be made for political reasons. Politically motivated acts of divestment are a violation of fiduciary duty and have led to the loss of billions of dollars of income in the past. For example, when the California Public Employees’ Retirement System divested from tobacco stocks in 2003, it was estimated to have cost the fund over $3.5 billion during the ensuing decade.

“Unfortunately, some pension fund trustees believe that their political agenda is more important than their fiduciary responsibility, ” said IPFI Chairman, Christopher Burnham and former Connecticut State Treasurer. “Pension beneficiaries, of which I am one, deserve better. CPPIB made a courageous and correct decision.”

Within the United States, acts of divestment have been occurring within several prominent pension plans. Both the New York City Employees’ Retirement System and the California Teachers’ Retirement System have voted to divest their funds from private prison holdings. These divestment actions follow long political battles and weaken the already underfunded pension funds. For more on this, see the research available on www.ipfiusa.org.

IPFI would like to congratulate CPPIB for choosing to fulfill its fiduciary responsibility instead of giving in to political pressure. Moving forward, the decision by CPPIB should be used as a model of behavior for other public pension funds.

Press Release: IPFI Reacts to the Proxy Voting Roundtable

FOR IMMEDIATE RELEASE
November 16, 2018

Press Release: IPFI Reacts to the Proxy Voting Roundtable

IPFI continues to call for the registration of proxy advisory firms with the SEC to ensure greater transparency.

Washington, DC – The Institute for Pension Fund Integrity (IPFI) attended yesterday’s roundtable hosted by the U.S. Securities and Exchange Commission (SEC). While reform is needed across the proxy voting process, IPFI’s primary attention was on the third panel, “Proxy Advisory Firms: The Current and Future Landscape.” Proxy advisory firms play an important role in advising institutional investors, including pension funds, on shareholder proposals. However, there is a demonstrated need for greater transparency in this process.

As IPFI outlines in our public comments to the SEC, the current proxy advisory system negatively impacts public pensions for two primary reasons:

  • Public pensions are large institutional investors, meaning that they serve as a powerful voice in corporate decision-making through their position as proxies for shareholders (retirees)
  • There has been a demonstrated increase in the politicization of shareholder votes, including by public pension fund managers defying their fiduciary responsibility.

The advisory system as it currently stands is open to conflicts of interests, as was much discussed during the panel. IPFI is calling on the SEC to require proxy advisors to adhere to their fiduciary responsibility and to register with the SEC, so that retirees can have a more transparent understanding of the proposals their fund managers are voting on. This will help reduce the politicization of shareholder proposals, which range the gamut from divestment, to corporate governance, to payscale proposals.

Reforming the proxy voting process would put more power into the hands of the actual pensioners, increase transparency, and help ensure that proxy advisors and pension fund managers fulfill their true fiduciary responsibility—the highest return at a reasonable risk.

Christopher Burnham, IPFI President and former Connecticut State Treasurer commented on today’s roundtable saying, “I think some of the most important words said at the panel were that we have to make sure that fiduciaries focus on enhancing shareholder value. That is the very essence of fiduciary duty.” He continued, “I agree that there should be no safe harbor from fiduciary duties, and that fiduciaries at all levels have the  same level of responsibility to the beneficiary as the day to day money manager. We also need to have the fullest and most unfettered transparency because it is essential to that duty.”

The roundtable that the SEC hosted today is an important first step in illuminating the proxy voting process. Furthermore, it’s a necessary step towards ensuring that the shareholder proposals that are put forth are in the best interest of the actual shareholders – in many cases, retirees who have dedicated their lives to supporting state and local governments.

Press Release – Submission to the SEC: The Proxy Voting Process Requires More Transparency

 

FOR IMMEDIATE RELEASE
November 12, 2018

Press Release – Submission to the SEC: The Proxy Voting Process Requires More Transparency 

Ahead of the SEC roundtable this week, the Institute for Pension Fund Integrity releases a white paper on the need for greater transparency in the proxy voting process to better serve public pension retirees and taxpayers

Arlington, VA (November 12, 2018) The Institute for Pension Fund Integrity (IPFI) has submitted public commentary on the need for greater transparency and accountability in the proxy voting process, as the U.S. Securities and Exchange Commission (SEC) hosts a roundtable to discuss the proxy voting process this week. The added transparency is a critical need for public pension retirees who rely on pension fund managers to make the right decisions in these votes – and not to use them for political purposes.

The SEC is seeking possible reforms to the proxy voting process in part because of the tremendous market power that large, institutional investors, including public pension funds, hold. The current structure cuts individual and passive investors out of the process. Additionally, another large problem is that two firms control 97% of the proxy advisory market, which these large institutional investors use to help guide decisions on shareholder proposals. This leaves the door wide open for conflicts of interest.

With proper proxy voting reform, policy makers can restore balance to the shareholder voting process, increase overall transparency, and ensure that the individual investor’s voice is not overshadowed by the potentially-misguided political motivations of fund managers and other institutional forces.

IPFI calls on the SEC to implement new policies so that proxy advisors are required to adhere to their fiduciary responsibility with counsel and register with the SEC, disclosing possible conflicts. Likewise, increased accountability, including the ability for companies to identify and mediate clear inaccuracies prior to institutional investors review, should be requisite.

Reforming the proxy voting process would put more power into the hands of the actual pensioners, increase transparency, and help ensure that pension fund managers fulfill their true fiduciary responsibility—the highest return at a reasonable risk.

Christopher Burnham, IPFI President and former Connecticut State Treasurer explained, “As the true owners of large pension funds, pensioners deserve complete transparency to know the details of the shareholder proposals and to have their voices heard as the ultimate shareholders in many of these large companies.”

If the SEC reforms the proxy voting process to add greater transparency and accountability, it would be an important step to keeping politics out of the management of public pensions.

To read more about the current state of the proxy voting process and recommendations for increased transparency and accountability in the process, please read the IPFI commentary: http://ipfiusa.org/2018/11/12/ipfi-issue-brief-proxy-voting-and-public-pensions/

The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer Christopher B. Burnham.

IPFI Issue Brief: Proxy Voting and Public Pensions

For decades, proxy voting has been a pillar of capital markets, ensuring that shareholders have their voice heard through elected representatives. However, this process is under threat as shareholder influence has been consolidated by institutional investors and other organizations that now own between 70% and 85% of the ten largest American companies. Wielding tremendous market power, these large investors are often the most powerful voice at shareholder meetings and can influence corporate decision-making at a level unavailable to the individual and passive investor. Moreover, these large investors often have political motivations that conflict with their duty as fiduciaries.

Read the full Issue Brief: IPFI Proxy Voting and Pensions

Chris Burnham Commentary in Institutional Investing in Infrastructure: Institutional investors don’t always see eye-to-eye on how to implement ESG

The trend toward implementing ESG — environment, social and governance — has hit critical mass, and most investment organizations are at various stages of either installing or preparing these policies. But could the hype get in the way of an organization’s mission?

That is a question that is on the minds of many people with a fiduciary duty to constituents.

Institutional investors such as pensions, endowments and sovereign wealth funds serve the financial needs of particular interests — pensioners, college students, a country’s citizens, for example. And the investment staff are duty-bound to make investments that further that mission.

But investment staff can get caught between differing views on how ESG should be used.

As featured on Fox & Hounds Daily website, an article by Christopher Burnham, a former Connecticut pension fiduciary and founder and president of the Institute for Pension Fund Integrity, noted that California Public Employees’ Retirement System board member Priya Mathur was recently voted out due to ESG issues.

Mathur was replaced by police officer Jason Perez, who stated during his campaign for the CalPERS board that ESG considerations are costing the pension returns. “This example [of certain investments] clearly shows how CalPERS is being used as a political action committee as opposed to a retirement fund.”

Burnham continues that ESG is, of course, important, and good governance is a critical part of investing, “However, a fiduciary has one mission and one mission only, and that is to manage the funds to which they have been entrusted with the highest return at a reasonable risk.”

Balancing fiduciary needs with ESG goals is the challenge for institutional investors, and there are reports that find the two are actually compatible — that ESG policy can lead to higher returns. But not in all cases.

In its September report, ESG investing for public pensions: Does it add financial value, the Institute for Pension Fund Integrity reports that while the research on whether ESG policy can add financial value to portfolios is not fully developed, there are studies that have found they can.

Read the full article here.

Chris Burnham Commentary in Barron’s: ESG Investing Suffers a Setback in California

A funny thing happened recently in the left-leaning Golden State. In a board election last month, members of the California Public Employees’ Retirement System, or Calpers, the biggest pension fund in the nation, threw out their president and gave ESG investing a bloody nose.

ESG is the increasingly popular asset-management style that applies environmental, social, and governance standards to screen potential investments. Following this approach, an investor might avoid certain stocks or push shareholder proposals to modify corporate behavior. Unfortunately, they often favor hard-to-define social objectives rather than the narrower goal of maximizing shareholder returns.

In the vote, Jason Perez, a sergeant in the Corona, Calif., police department, upset board member Priya Mathur, a 15-year Calpers veteran, who was also board president and a champion of Calpers’ focus on ESG investing. The pension fund runs $351 billion for its 1.9 million members. Because of its size and stature, Calpers is among the most influential institutional investors in the U.S., and its policies are often adopted by other state pension funds.

Perez, who received 57% of the vote to Mathur’s 43%, ran a campaign that criticized her support for Calpers’ use of ESG, which goes back to at least 2012. Perez’s victory didn’t come as a surprise to those who bothered to look at Calpers’ mediocre recent returns. And that’s exactly what members seemed to have done…..

“We are reaching a crescendo of bad fund management meeting unfunded liabilities,” says Christopher Burnham, president of the Institute for Pension Fund Integrity. “Calpers members recognize this and reject those who are playing politics instead of getting the highest rate of return at a reasonable risk.”

Read the full article here.

Chris Burnham Commentary in Fox & Hounds Daily: CalPERS Must Focus on Fiduciary Responsibility, Not Social Issues

Recently California Public Employees’ Retirement System (CalPERS) – whose former board president, Priya Mathur, was discarded as a board member by a landslide vote of 57% to 43% – signed a letter asking the Securities and Exchange Commission (SEC) to develop metrics for requiring listed companies to report on their compliance with environmental, social, and governance (ESG) standards that presumably would be set by the SEC.

What a stick in the eye of the more than one-million beneficiaries of the almost $400 billion pension system, as she unceremoniously departs, after leading an organization that left billions of dollars in out-performance on the table due to pervious political investing.

The role and responsibility of a fiduciary is not to invest with a personal political agenda, nor is it to impose their personal vision on what types of companies to invest in or not, including tobacco, alcohol, gambling, energy, private prisons, and others. For almost 1000 years, fiduciary duty has meant one thing: investing other people’s money for their (retirement) benefit and security.

Read the full story here.

Ken Blackwell Op-Ed in The Toledo Blade: Treasurer candidate playing politics with state funds

The trouble we run into during campaign season is candidates making emotional promises that yield harmful policy. One of the state Treasurer candidates has essentially promised to use state investments as a political tool. This misguided approach is harmful to Ohio’s financial future.

Democratic state Treasurer nominee Rob Richardson said (”Attorney pushes investing changes; Richardson outlines goals,” Oct. 14) he plans to divest state investments in private prison companies to make a statement, even though these companies have proven profitable investments for our state.

Promising divestment from private prison stocks is pandering for votes, and won’t impact how such companies operate or that they exist. The state treasurer must understand that a robust pension fund is the goal and these stocks have delivered. The Public Employees Retirement System of Ohio invests in both of the nation’s two largest prison contractors, the GEO Group and CoreCivic. As of June, 2018, the GEO Group stock owned by the Public Employees system was valued at over $2.5 million, with the investment in CoreCivic stock valued at over $5.5 million. The State Teachers Retirement System of Ohio also owns stock in both companies, to the tune of $5.7 million and nearly $4.9 million, respectively. Both of these companies have seen astronomical growth in share prices since 2016.

Read the full story here.