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.