TPPF’s Life has released a new study highlighting how Environmental, Social, and Governance (ESG) activism has infiltrated state retirement systems. The study reveals a concerning trend where ESG activists are using major asset managers and proxy voting firms to push progressive agendas in place of prudent financial stewardship.
Over the past decade, the investment landscape has been reshaped by the ESG movement. ESG activists are now advancing politically charged agendas, from climate change to social issues like abortion and gun rights. This shift is particularly alarming due to the consolidation in the investment industry, with firms such as Vanguard, BlackRock, and State Street controlling up to 20% of voting shares in many public companies. These firms have been marketing ESG funds to enhance profitability in a competitive market.
Further complicating the issue is the proxy voting advisory market, where Institutional Shareholder Services Inc. (ISS) and Glass Lewis control over 90% of the market share. These firms are enabling ESG-driven shareholder resolutions, embedding political activism in corporate governance.
Public pensions, including the California State Teachers’ Retirement System (CalSTRS) and the California State Employees’ Retirement System (CalPERS), are leading the adoption of ESG principles. Even pensions that claim neutrality are often influenced by advisors advocating these trends. The study also found that state pensions support more environmentally-focused resolutions on average than major asset managers, signaling a broader shift towards activism over fiduciary responsibility.
In response, over 20 states have enacted measures to protect their investments from ESG influence. However, the study argues that further action is required. States are encouraged to pass statutes that prevent pensions from endorsing social or political agendas in their investment strategies and proxy votes. Key recommendations include adopting custom proxy voting policies that align strictly with fiduciary standards, implementing third-party audits for proxy voting and corporate engagement, and revoking authority from asset managers that fail to comply with fiduciary duties.
The report emphasizes the need for state pensions to prioritize maximizing returns for stakeholders, rather than advancing political or social agendas. By reinforcing fiduciary responsibility, state pensions can safeguard investments and contribute to a more stable economy.
Texas Public Policy Foundation is a non-profit free-market research institute based in Austin that aims to foster human flourishing by protecting and promoting liberty, opportunity, and personal responsibility.
