IPFI Issue Brief: ESG and the Proxy Process – What Does the Research Say?

With environmental, social, and governance (ESG) investing on the rise and calls for public pensions to divest from fossil fuels, private prisons, gun manufacturers, and others, IPFI compiled the latest research to determine the efficacy of ESG investing for public pensions.

Public pensions across the country are facing almost $6 trillion in unfunded liabilities. Any strategy that adds value to pension fund investments is worth examining. However, if the strategy doesn’t produce stronger returns, it should be dropped. In fact, evidence shows that ESG funds fall short of traditional fund performance, prioritizing ethical, social, or even political concerns ahead of optimizing returns for investors.

Beyond the challenges of ESG investing, the issue brief details the role that proxy advisory firms are now playing in the ESG investment ecosystem, which is relevant especially in light of the Securities and Exchange Commission’s review of the proxy process. The issue brief summarizes four key points:

  • Years of experience show ESG funds fall short
  • Frictional costs and values screens limit fund performance
  • Exclusions and divestments are particularly harmful to returns
  • The role of proxy advisors in the ESG ecosystem deserves scrutiny

Read the full Issue Brief: ESG and the Proxy Process – What Does The Research Say