In an interview last week, New York City Comptroller Brad Lander, described as “a custodian of, and financial adviser to, five pension systems,” argued against the politicization of ESG.
Environmental, Social, and Governance (ESG) investing refers to a set of standards for a company’s behavior used by investors who say they want to remain socially conscious. It’s a benchmark by which companies can screen potential investment opportunities.
Lander has also argued that the city’s pension funds divest from fossil fuel stocks and that ESG should guide investment decisions for the largest municipal pension funds in the nation:
Politicized rhetoric against ESG is making it harder for investment managers to consider the financial risks posed by climate change, says the overseer of the nation’s biggest municipal pension fund.
“I wish I could start from square one, when the field hadn’t already been polarized,” Brad Lander (D), comptroller of New York City, said in an interview. “I wish you could start from a place of saying, ‘Let me talk to you about what the pension obligations are that run out for decades.’”
Lander serves as a custodian of, and financial adviser to, five pension systems that are worth $248 billion and cover some 750,000 public sector workers. Three of those funds—representing teachers, transit workers, and a wide range of other city employees—have committed to achieving net-zero emissions in their portfolios by 2040.
He has faced resistance from Republican elected officials over his investment strategy, as well as a lawsuit from public employees against the retirement fund.
Some of the hostility Lander has encountered in promoting ESG concepts arises from a misunderstanding of what the New York City’s comptroller’s office does and doesn’t do, he said….
Lander also said his identity as a progressive Democrat doesn’t influence the “very specific set of duties and responsibilities” he now must fulfill. Lander was the founding co-chair of New York City Council’s Progressive Caucus when he served as a council member in former Mayor Bill de Blasio’s old district….
Not everyone agrees with Lander’s position.
Four current and former city employees recently sued the three city pension funds that support ESG, alleging they breached their fiduciary duty by shedding $4 billion in fossil fuel investments.
“In America, you can always invest your own funds based on your personal or political preference so long as it’s done legally,” Utah Attorney General Sean Reyes said in an interview. “But when you invest other people’s assets as a fiduciary—particularly when those beneficiaries are public employees who are captive to your decisions—you are held to a much higher standard.”
Making investment decisions based on ESG factors, “as it appears Lander is doing, contradicts the duties of public pension trustees if those decisions are motivated by broad social, environmental, or governance concerns, rather than the exclusive financial interests of participants and beneficiaries,” Reyes said.
Similarly, Rep. James Comer (R-Ky.), chair of the House Oversight and Accountability Committee, during a May hearing called ESG investing “window dressing for liberal activism and radical far-left ideology.”
Lander said that kind of rhetoric hasn’t softened his stance on ESG, and he will continue to press the two city pension funds that haven’t adopted a net-zero implementation plan to do so. Those funds represent police officers and firefighters.
Broadly, the implementation plans lay out a strategy for emissions disclosures, interim targets, stronger partnerships with other investors, investments in climate change solutions such as renewable energy, and ultimately divestment.
But Lander also said he’s concerned about “a moderating or slowing impact” the pushback is having on some of the pension funds’ investment managers.
“Many of those folks don’t want to be in the eye of a political storm,” Lander said. “So even if they know they should have the freedom to invest, even if they know that it’s critical to decarbonize their portfolios, they’re slow-walking or stepping back from those obligations because of the political attacks.”…
Most of the academic literature shows that ESG funds under perform non-ESG funds, according to Samuel Hartzmark, an economics professor at Boston College’s Carroll School of Management.
“If you’re making investments in ways not to optimize total returns, it would be very difficult that that could lead to higher returns,” Hartzmark said.
The data is often noisy, and ESG investing is still too new for definitive conclusions to be reached, according to Hartzmark. But the findings of underperformance make intuitive sense if only because non-ESG funds have a wider pool of investments from which to choose, he said.
Produced in association with Ballotpedia
Edited by Jessi Rexroad Shull and Kyana Jeanin Rubinfeld