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


Molly Hall


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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.


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.


Opinion/Letter: NY pensions deserve protection – Richard Brower in New York Daily News

This Letter to the Editor originally appeared in New York Daily News on September 21, 2019.

Rockville Centre, L.I.: Re “Don’t be fuelish, Tom,” (Sept. 2): New York’s retirees served the state all of their lives. As a former vice chairman of the FDNY Pension Fund and advisory board member for the Institute for Pension Fund Integrity, I know that it’s up to the public pension fund fiduciary to be able to hold up their end of the bargain and ensure retirees’ financial security is well-funded. As state controlleroverseeing New York State Common Retirement Fund (NYSCRF), Tom DiNapoli has been doing just that. But the recent outcries to divest our public pensions from fossil fuels are based purely in politics and will harm our retirees.

The NYSCRF oversees $210.5 billion, which benefits more than one million members, retirees and beneficiaries. Taking steps like divestment are futile and only jeopardize the financial security of the pension recipients.

Climate change is obviously an important issue, which is why DiNapoli released the Climate Action Plan. The plan seeks to double the fund’s commitment to its sustainable investment-climate solutions program to $20 billion over the next decade.

Currently, New York’s pension fund is 94.5% funded, which is above the 69% average for state pension funding. The NYSCRF is clearly performing well based on the current investment allocations. If DiNapoli is forced to divest from profitable investments, the fund’s financial integrity may be jeopardized. Through its current course of action, New York has ensured that pension recipients will receive their hard-earned retirement.

I applaud and support DiNapoli as he prioritizes his fiduciary responsibility over political whims. Activists’ and politicians’ actions only risk our well-deserved retirement.

Reforming The Proxy Advisory Firm Duopoly: An Analysis of Recent SEC Guidance and Its Implications for Public Pension Retirees

Since 2018, the U.S. Securities and Exchange Commission (SEC) has been evaluating the role that proxy advisory firms have regarding shareholder engagement. This has resulted in recent Commission-level guidance to clarify the relationship between proxy advisory firms and institutional investors. At the end of the day, public pension retirees rely on their pension systems and fund managers to make smart investment decisions to ensure a secure retirement. But is that possible when proxy advisory firms provide biased recommendations on shareholder resolutions that may not prioritize financial returns? 

In light of the SEC’s recent guidance and ahead of an upcoming House Financial Services Committee hearing on September 24 that will feature all four SEC Commissioners and the Chairman, the Institute for Pension Fund Integrity (IPFI) has released its latest report analyzing the rise of proxy advisory firm influence and the actions that the SEC has taken to date. 

The SEC is taking proactive measures to reform what has, over time, become a convoluted process that yields questionable results for public pension retirees and other retail investors. However, stronger action is still needed. The IPFI brief details the following:

  • Prior SEC guidance has produced a complex set of unintended consequences. Oftentimes, guidance that sought to clarify the responsibilities of investment managers and proxy advisory firms inadvertently led to the consolidated power of proxy advisory firms we see today. 
  • Lack of transparency and conflict of interest remain of paramount importance when it comes to reform. Only two major players, Glass Lewis Co. and Institutional Shareholder Services Inc. (ISS), dominate the proxy advisory market. Insufficient oversight and ambiguity surrounding recommendations provided by proxy advisory firms raise the question of how susceptible these firms are to outside influence. 
  • Institutional investors who manage public pension funds face unique challenges. Particularly, activists have attempted to exploit the proxy advisory system and impose an Environmental, Social, and Governance (ESG) agenda when they are unsuccessful in advancing their causes through the legislative process. But these investment strategies do not always produce profitable return margins as would other traditional investment strategies.
  • The SEC issued two interpretive releases in August 2019 that set a clear agenda for future reforms. One release defines proxy advisory services as “solicitations” which affects the extent to which proxy voting recommendations are subject to anti-fraud rules. The second release pertains to an investment adviser’s fiduciary responsibility as he or she employs proxy voting on a client’s behalf. This Commission-level guidance sets a clear tone on the SEC’s position that proxy advisory reform demands immediate attention and substantial re-evaluation. 
  • Robo-voting disenfranchises public pension retirees and retail investors and goes against their financial interests. “Robo voting” is a system that many public pension funds and institutional investors use to automatically dispense their responsibility to execute proxy votes to proxy advisory firms. When ISS or Glass Lewis advances an ESG-related shareholder resolution that prioritizes a political, social or environmental agenda over financial returns, the public retiree’s interests have been disenfranchised due to robo-voting.

IPFI President Christopher Burnham recently wrote in Forbes that “With the new SEC guidance, proxy voting firms, rather than being stealth conduits for politics, will now have to be far more transparent and accountable.” He continued saying, “the Commission-level guidance must still go further to fully address the underlying problem with proxy advisors: that they serve as a conduit for investing with a political purpose, violating fiduciary duty, and historically, negatively affecting public pension fund performance.”

IPFI maintains that investment advisers must place the financial considerations above any other factor. We conclude with recommendations on what steps the SEC can take to ensure that proxy advisory firms do not compromise the financial returns of America’s public pensions. Key recommendations include:

  • Fixing the Lack of Transparency and a One-Size-Fits-All Approach – One notable step proxy advisory firms can take to address concerns about the opacity of their recommendation process is to devise a system that demonstrates their recommendations are issuer-specific. Among the services offered by proxy advisory firms should be the assurance to shareholders and stakeholders that their organization’s needs and objectives were carefully factored into each vote. A public notice-and-comment process would also foster trust and inform proxy advisory firms on the general consensus of those affected by corporate decision-making.
  • Disclosure of Conflicts of Interest – To help reduce the negative financial consequences of potential conflicts of interest, the SEC must clarify the extent of proxy advisory firms’ fiduciary responsibility. Establishing a coherent regulatory guideline on this contentious matter will equip all relevant parties with a framework for assessing the utility and benefit of recommendations made by industry giants like Glass Lewis and ISS. 
  • Reforming Shareholder Engagement – The argument that proxy advisory firms operate in a closed circle without proper shareholder engagement is a common argument in favor of reform. Extended review periods would allow for increased dialogue between the two parties. This would also serve as an opportunity to document dissenting opinions that shareholders may raise. In this sense, the voices of those directly tied to major investments will gain prominence over those being raised from the sidelines. 

Read the latest issue brief, Reforming The Proxy Advisory Firm Duopoly: An Analysis of Recent SEC Guidance and Its Implications for Public Pension Retirees

PRESS RELEASE: California Treasurer Inserts Politics Into the Management of Teacher Retirement Fund


September 12, 2019

California Treasurer Inserts Politics Into the Management of Teacher Retirement Fund 

The Institute for Pension Fund Integrity urges California Treasurer Fiona Ma to prioritize her fiduciary duty instead of politics to optimize state investments.  

Arlington, VA – Yesterday, California Treasurer Fiona Ma, CPA, decided that supporting a political stunt was more important than prioritizing strong fiscal policy to ensure a stable retirement for California’s teachers. During an Investment Committee hearing on September 5, Treasurer Ma and young climate activists urged the California State Teachers’ Retirement System (CalSTRS) to divest its funds from fossil fuel companies as a means of fighting the current climate crisis. While finding sustainable solutions for fighting climate change is important, the Institute for Pension Fund Integrity (IPFI) maintains that divestment based on political instead of financial considerations goes against Treasurer Ma’s fiduciary duty and puts the secure retirement of almost a million Californian teachers at risk. 

Divestment has been shown repeatedly to be ineffective and actually cost funds more than the companies that they divest from. California’s other major pension fund, the California Public Employees’ Retirement System (CalPERS) is a great case study for the cost of divestment. After divesting from tobacco in 2000, CalPERS lost nearly $3 billion over the next thirteen years. In fact, CalPERS has lost almost $7.8 billion since 2001 due to various divestments. Furthermore, while divestment often seeks to impact a company’s bottom line, several studies show that divestment campaigns have minimal to no impact on company finances.  In the end, divestment is simply a political maneuver that has real costs. 

IPFI President Christopher Burnham recently reiterated that “activist investing has a place in personal portfolios but no place in public pension plans.” He continued saying, “the oath of fiduciary responsibility is one of the strongest oaths we can take, and we must focus on keeping politics out of our fiduciary decisions.” 

IPFI’s recent study on public pension fund performance showed that 47 out of 52 pension plans could not outperform a simple index fund of 60% stocks and 40% bonds. To already be grossly underperforming a simple index fund while under active management, to now want to add activist investment, is the height of fiduciary irresponsibility. IPFI encourages CalSTRS and Treasurer Ma to prioritize the dedicated teachers of California, and to ensure that today’s investments result in tomorrow’s secure retirement. 

For more on IPFI’s positions regarding divestment and fiduciary responsibility, see IPFI’s research available on

PRESS RELEASE: SEC Commission Guidance on Proxy Voting is Encouraging


August 21, 2019

SEC Commission Guidance on Proxy Voting is Encouraging

The Institute for Pension Fund Integrity commends the SEC for moving towards greater clarity on the proxy voting requirements and fiduciary responsibility for institutional investors. However, more is needed.

Arlington, VA – The Securities and Exchange Commission (SEC) has been reviewing the role of proxy advisory firms and the processes surrounding proxy voting for more than a year. The action taken by the Commission at today’s meeting to issue formal guidance on the proxy voting responsibilities of investment advisers is an important first step toward providing clarity essential to fiduciaries. This official guidance is a welcomed first step in a process that will add necessary transparency and accountability.

Proxy advisory firms have an outsized influence on public pensions because fiduciaries feel an inherent mandate requiring them to vote every single proxy. Two proxy advisory firms, Institutional Investor Services (ISS) and Glass Lewis, control 97% of the proxy services market despite apparent conflicts of interest and lack of regulatory oversight. By reducing the requirement of institutional investors to vote every single proxy, proxy advisory firms and institutional investors, such as public pension funds, will be able to focus on shareholder resolutions that directly impact shareholder value, thereby benefiting all our public employees and retirees.

In response to this guidance, Institute for Pension Fund Integrity (IPFI) President, Christopher Burnham, commented, “Firm adherence to fiduciary responsibility was evident at today’s meeting, and it’s clear that it was the overarching factor in developing the Commission’s guidance.” Burnham continued, “the SEC is moving in the right direction on the proxy voting issue, and I’m encouraged by today’s comments from the Commission that we’ll see more action by the SEC through a rule change to provide further transparency in the opaque proxy advisory environment.”

IPFI continues to fight for strict adherence to fiduciary responsibility and to keep politics out of the management of public pension funds. Considering the latest research showing the underperformance of public pension funds, now more than ever, pensions need to focus on fiduciary responsibility and proxy voting that will enhance investment returns. Read more about the intersection of public pensions and proxy voting at


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.

Opinion/Letter: Divestment vote was doubly wrong – Christopher Burnham in the Charlottesville Daily Progress

This letter to the Editor originally appeared in the Charlottesville The Daily Progress on August 13, 2019

Charlottesville voted to divest from fossil fuels and national defense companies. The City Council of Charlottesville seeks to disassociate itself from companies that fuel our cars, heat our schools and businesses, or support our armed forces. As a Virginian and retired Marine Corps officer, I find this outrageous.

What kind of cars do City Council members drive? What energy is used to heat their homes? It doesn’t matter, because the vast majority of energy produced in Virginia relies on nuclear, gas and coal. In fact, gas and coal account for 62% of energy production in Virginia. Over 100,000 Virginians are traditional energy or energy efficiency workers. Additionally, about 50,000 workers are involved in the motor vehicles industry — vehicles, including hybrids, primarily powered by fossil fuels.

The city treasurer recently said that divestment will have minimal effect on the city’s financial stability. So if divestment is harmless, then is this an empty political gesture or stunt?

This divestment insults every soldier, sailor, airman and Marine who relies on Virginian-made defense technology to preserve, protect, and defend our country. It also insults the men and women of our state laboring in the energy field to heat (or cool) our homes, get our kids to school, and keep our country running.

Divestment is also a terrible fiduciary decision. National defense companies have been among the top-performing stocks in the past decade, including Virginia-based General Dynamics and Northrop Grumman, also headquartered in Virginia. But then, this has a “minimal effect.”

The Charlottesville City Council, rather than making empty political gestures, should determine how to make city government faster, better, and cheaper. It was a self-serving vote, and a hypocritical one to boot.

Christopher Burnham


Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios

With many states facing tough budgetary decisions, in part because pensions are requiring greater contributions, the Institute for Pension Fund Integrity decided to compare pensions through another metric besides the funding ratio. How well a pension is funded is important for determining the overall health of the system, but if the investments are not performing well, the system will continue struggling. Using a passive investment strategy as the guiding marker, IPFI has ranked pension systems across all fifty states based on their performance.

The findings were released in a new paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios.

IPFI drew data the Vanguard Total Stock Market Index and Vanguard Total Bond Market Index to build two passive index investment portfolios for comparison: one portfolio was 60% stocks, 40% bonds, and one was 50% stocks and 50% bonds. After thorough analysis, IPFI identified several key points:

  • Only five of the 52 pension funds that were analyzed outperformed the 60/40 passive index investment portfolio.
  • Only one state had both strong pension performance and is well funded. South Dakota is 100.1% funded and was 71 basis points stronger than the 60/40 index portfolio.
  • California was the 10th worst performing pension system, 116 basis points less than the 60/40 portfolio. However, California is almost 69% funded. This is important because the state is known for their activist investment strategies and has lost about $7.8 billion since 2000 due to various divestments based on political and social investment strategies.
  • Wisconsin, which has the best funded pension system in the country, performed 72 basis points worse than the 60/40 portfolio. This proves that fund performance is not the only needed metric to ensure a healthy pension. Wisconsin has reliably contributed the actuarially determined amounts to the system, helping its funded status.
  • The politicization of pension fund investments does have an impact on overall fund performance, and if a pension fund can’t beat a basic balanced passive investment strategy, it is time to reevaluate the current investment strategies and leaders in charge.

In developing this strategy and in response to the subsequent analysis, IPFI President and former Connecticut Treasurer Christopher Burnham said, “If a fund can’t outperform a basic balanced passive investment strategy, it is time to fire the fiduciaries and outsource the management of the pension fund to a simple, no cost, passive mutual fund.” He continued saying, “We hope this information will be used to provoke a discussion of the failure of the way some state fiduciaries and administrators manage our precious retirement and taxpayer dollars.”

IPFI is dedicated to bringing greater transparency and accountability to public pensions, fighting to keep politics out of the management of pension investments. This research, along with other quantitative and qualitative analysis that the organization provides, seeks to provide retirees, taxpayers, and policymakers with the data needed to ensure that pensions will continue providing for the hardworking Americans who dedicated their careers to the public sector.

Read IPFI’s latest paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios








PRESS RELEASE: IPFI Urges Pittsburgh Pension Board to Stay Strong Against Politicization of Fund


July 1, 2019           

IPFI Urges Pittsburgh Pension Board to Stay Strong Against Politicization of Fund


As the Pittsburgh Comprehensive Municipal Pension Trust Fund faces calls to divest from gun manufacturers and other companies, board members should continue prioritizing the secure retirement of its retirees.

Arlington, VA – On the heels of Pittsburgh Mayor Bill Peduto submitting a plan to divest the Comprehensive Municipal Public Trust Fund (CMPTF) from gun and ammunition, fossil fuel, and private prison companies, Chairman of the Board Ralph Sicuro has reaffirmed the fund’s commitment to fiduciary responsibility. IPFI applauds and supports Chairman Sicuro’s courage in the face of those seeking to put politics before fiduciary responsibility.

Mayor Peduto outlined his intentions in a recent letter to the seven member board of the CMPTF, which holds $463 million to fund the retirement of the city’s teachers, firefighters, and employees. Some members of the board have already expressed deep concern over the mayor’s proposal. City Spokesman Tim McNulty stated that it is unclear how divestment would impact the fund’s performance. As a result, the board has convened an exploratory committee to determine the potential harm of divesting. Echoing this decision, Chairman Sicuro affirmed that the foremost goal of the fund was not activism, but instead, is adhering to fiduciary responsibility to grow the fund.

IPFI is committed to advocating for a secure future for all public pension funds, and commends the board’s efforts to maintain fiduciary responsibility. Mayor Peduto must recognize that the board exists as the steward for thousands of employees’ retirement and pensions. The city of Pittsburgh faces a net pension liability of $918.4 million. The board must consider the costs of divesting from value-adding assets, and understand the negative impact that this move would have on the pension fund performance.

What Mayor Peduto is pushing for is not classic environmental, social, and governance (ESG) investing; it is political investing plain and simple. ESG investing focuses on best practices and stewardship in all corporations, not just in those that are a political fad today. In doing so he is squarely putting politics, and his political career, ahead of the secure retirement of all current and retired public employees in Pittsburgh. Fiduciary responsibility always trumps politics.

IPFI President Christopher Burnham recently said, “Prioritizing a political agenda instead of fund performance is a breach of fiduciary responsibility and violates the special trust and confidence which hard-working pensioners have placed in their mayor.” He continued, “The board should strongly reject this plan, and continue prioritizing the primary objective of growing the fund for a secure retirement for all. Pittsburgh public servants and Pittsburgh taxpayers should insist that politics and political advancement should never come before fiduciary duty.”

For more on IPFI, proxy advisory firms, and other issues facing public pensions check out our website at A recording of the discussion is also available at


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.

COMMENTARY: It’s Proxy Season And Here’s Why That Matters For Public Pensions

This op-ed originally appeared in Forbes on June 13, 2019.

This is the time of year when publicly traded companies host their annual shareholder meetings. During these meetings the shareholders vote their shares on various issues impacting the company. The company’s proxy statement will include shareholder resolutions on everything from executive pay to proposals that impact how the company operates. This is a critical part of keeping management focused on increasing shareholder value (i.e., growing the company).

This can be a complicated cycle for public pension plans that typically have thousands of issues to vote on for hundreds of companies. Most pension plans hire outside consultants to advise on how to vote the various issues confronting shareholders, and in some cases, public plans assign their vote directly to the proxy advisory firms.

I disagree with this for two reasons: first, proxy voting firms are not fiduciaries and are not required to be registered with the Financial Industry Regulatory Authority (FINRA); second, they are not managing the money—typically pension funds hire money managers to do that.

As Connecticut State Treasurer in 1995, I made sure that all our asset managers only collected fees when they out-performed their benchmark. That is the quintessential “alignment of interest”. The problem with proxy advisory firms is that they have no alignment of interest. They may make a recommendation of how to vote based on issues that have a political impact but not a shareholder value impact. No matter what—they still get paid their fee. A far better way would be to do what we did in Connecticut—let the money managers whom you have chosen based on a myriad of factors, including their performance, vote the proxy shares—and pay them their fees only when they outperform the benchmark. Now that is an incentive for money managers to force corporate managers to stay focused on strengthening and growing the company.

Politicians may argue that good politics makes for good shareholder value, but unfortunately, this is a violation of fiduciary responsibility. Make politics in the legislatures, but please leave our precious retirement funds free from your personal political opinion.

The two largest proxy advisory firms, ISS headquartered in Rockville, MD, and Glass Lewis, headquartered in San Francisco, CA, control 97% of the advisory market. Among other services, they develop proxy proposals, analyze proxy proposals, and provide clients with recommendations on how to vote all other proposals. These two companies recommend proxy proposals, provide suggestions to clients about how to vote on those proposals, and in some cases, vote their clients proxy. In other words, they have the ability to control the entire proxy process which has led them to have a duopoly on how institutional investors vote.

This concentrated power has prompted the SEC to take action and begin reviewing the current rules governing proxy firms. This started with a panel discussion in November, 2018 to hear from the various stakeholders that would be affected. Since then, and since the official comment period opened, the SEC has shared more than 250 unique comments on the issue of proxy advisory firms, with a majority in favor of reform.

But how should the SEC deal with this monopolistic concentration? First and foremost, those in charge of our public pension plans (which is not the SEC) should let money managers do their job—and managing money in my mind also means managing the proxy votes. Let those who manage your money also vote your shares in the best interest of all shareholders.

However, if plan sponsors want to continue to use third party firms, then these firms should be held to the same fiduciary standard to which money managers are held—and as a first step they should have to register with FINRA, and the SEC should assign fiduciary responsibility to them for their fiduciary advice.

Our public pensions funds are facing an almost unfathomable unfunded liability burden that will impact the retirement security of our teachers, firefighters, and public servants, including me, very shortly. Proxy advisory firms are making recommendations on decisions that impact company performance. They should be making those decisions in the best interest of improving returns and not based on the political whims of the day or upcoming elections. Applying fiduciary responsibility to proxy advisory firms would be an important first step.

COMMENTARY: State Pension Funds Shouldn’t be Captive to Politics

This op-ed originally appeared in The Buffalo News on June 09, 2019.

The politicization of pensions continues plaguing our state. In a misguided effort to fight climate change, State Sen. Liz Krueger introduced Senate bill 2126, the Fossil Fuel Divestment Act, earlier this year.

This prompted an open letter from New York Comptroller Thomas DiNapoli, urging Krueger to reconsider this legislation on the basis that it limits his fiduciary responsibility to manage the state pension funds for the sole interest of its beneficiaries. DiNapoli is right – and the Legislature shouldn’t limit his ability to do his job.

As a lifelong New Yorker and retired officer of the Fire Department of New York, I believe in empowering fiduciaries to make the best decisions for the funds without the influence of politics. By cutting investments that have generated more than $4 billion over the past decade, the Senate bill would force DiNapoli to abdicate his fiduciary responsibility, which stands independent of political and social opinions.

During an April 2019 hearing on the bill, New York State Common Retirement Fund’s interim chief investment officer, Anastasia Titarchuk, explained the benefits of the fund having a strong diversification strategy – which also includes $10 billion in its sustainable investment program. She called divestment a “blunt instrument that does not actually address the greatest [climate change] risks … ”

New York job opportunities will also suffer if the state divests. In 2018, the fossil fuel sector grew by 4.9% and is projected to grow another 3% in 2019. New York could see economic gains between $2.6 and $5 billion from liquefied natural gas exports alone.

Beyond divestment posing a threat to New York’s workforce and retirees, it hasn’t been proved that it fights climate change. An issue brief from the Institute for Pension Fund Integrity (for which I am an advisory board member) explores this topic, showing that divestment doesn’t necessarily force a company to change its actions.

Pension funds have begun to realize that the costs of divestment are not worth the political statement. Recently, New York City police and fire pension funds opted against participating in Mayor Bill de Blasio and City Comptroller Scott Stringer’s divestment plans. And CalPERS voted to oppose legislation which would require divestment from private prison companies.

New York must recognize the futility of divestment and its ineffectiveness for urging change. It only hurts retirees and local economies. Fellow pensioners, retirees and taxpayers must demand separation between political opinions and public pension management. Politicians should not jeopardize our hard-earned retirement and a healthy economy because of a political agenda.

Richard Brower is a former vice chairman of the New York City Fire Department’s Pension Fund.

Be a faithful fiduciary — keep politics out of your decisions when investing other people’s money

This recent op-ed originally appeared in The Washington Examiner on May 21, 2019.

Amid growing calls for divestment from several industries, Milton Friedman’s view on the role of business in politics bears repeating. Friedman explained that corporate executives are agents of the companies to which they are employed, acting on behalf of the company’s owners and tasked with the responsibility of increasing earnings.

Whereas principal actors make decisions about how to spend their own time or money, agents are entrusted with the resources of others. As an agent, executives accept a fiduciary responsibility to the company’s shareholders. Directing investments strategically in an effort to enforce or oppose a political agenda distorts what should be a data-driven decision geared towards maximizing returns.

Furthermore, politically motivated investments erode the integrity of our democratic system by utilizing private entities to carry out processes that traditionally have to earn popular support through the legislative system.

We are seeing a worrying trend of fiduciaries giving in to activist pressure instead of prioritizing fiduciary responsibility. For example, vocal opponents of current immigration policies, which are not new to this administration, have advocated for divestment from private prison companies. This is regardless of the fact that private companies don’t dictate public policy. The California Public Employees’ Retirement System (CalPERS) felt this pressure as it faced a pending bill to divest its holdings from these companies, which total over $10 million in stocks. The transaction costs alone associated with such a move would reach an estimated $175,000.

Breaking from its public pension peers like the California State Teachers Retirement System (CalSTRS) and the New York City Employees’ Retirement System, CalPERS recently voted to oppose the pending bill which would mandate divestment. CalPERS’ decision to uphold its fiduciary responsibility to its plan members, the millions of retirees who have contributed to the fund to guarantee a stable income after dedicating their careers to public service, reminds us what’s at stake.

The private sector should follow CalPERS’ lead and prioritize its fiduciary responsibility over that of political expediency.

In a statement, JPMorgan spokesman Andrew Gray attributed the decision to no longer provide credit to private prisons to “a robust and well established process to evaluate the sectors that we serve.” Nonetheless, the pivot cannot be disentangled from the enormous political pressure that the company faced.

Following this decision, Senate Banking Committee Chairman Mike Crapo sent a letter to the CEOs of eight of the largest banks, stating that they “should not seek to replace legislators and policymakers.” Instead, these executives must focus on the vital role that banks serve in strengthening the economy and creating jobs. Hence, lending decisions ought to be based on creditworthiness, not politics. When politics become a factor in lending, banks run the risk of punishing companies that operate in full compliance with state and federal law while also providing necessary services.

Beyond the authoritarian implications of weaponizing private asset management dealings against politically disfavored industries, the decision to divest from companies with reliable returns harms both the shareholders as well as the local economies that are enriched through employment opportunities.

But the question now is where does it stop? In a subsequent House Financial Services Committee hearing, JPMorgan received criticism for lending to the gun industry. For public pensions, it started with calls to divest from tobacco in the ‘90s; today, it’s everything from fossil fuels to gun manufacturers. Considering the negative health effects of sugar, will soda companies be next?

Friedman’s championing of fiduciary responsibility doesn’t need to be at odds with social justice values. In keeping politics out of investment strategy, fund managers help facilitate economic growth that benefits communities across the socioeconomic spectrum. While it is prudent to mitigate perceived reputational risks, investors cannot allow the political causes of the day to compromise their fiduciary responsibility to secure long-term returns. This is true across the public sector, but we must also remind our private sector counterparts that adhering to their fiduciary responsibility is not an option, it’s an obligation.

Ken Blackwell is a board member of the Institute for Pension Fund Integrity and a senior fellow at the Family Research Council. He is the former Ohio State Treasurer from 1994-1999 and is a former member of the Board of Directors of Fifth-Third Bank and the Fifth-Third Bank holding company.