TPPF Releases New Research: Keeping Politics out of State Pensions: A Multi-State Survey of Proxy Voting Practices

Today, TPPF’s Life:Powered released a new study detailing how Environmental, Social, and Governance (ESG) activism has led state pension systems to push progressive policies on companies they invest in. This research highlights a troubling trend of political groups, major asset managers, and proxy advisory firms colluding to utilize state pension assets to push political agendas in place of prudent financial stewardship. The paper also shows how states can take simple steps to ensure their assets are being managed appropriately.

Proxy voting, wherein a company’s investors elect board members and vote on corporate governance issues, has been a problematic area for state pensions. While many large investment firms have faced heavy criticism for promoting left-leaning policies on issues such climate change, abortion, and gun control, our research shows that state pensions often vote for more of activist resolutions in corporate election than the major investment firms do.

The reason this happens is because pensions outsource the labor-intensive activity of voting in thousands of elections every year to proxy voting advisory firms that automate the process for them. Two firms, Institutional Shareholder Services Inc. (ISS) and Glass Lewis, control over 90% of that market, and both firms aggressively promote their ESG services while incorporating activist agendas into their benchmark voting policies.

The good news is that over 15 states have already enacted measures to protect their investments from ESG pressures, and firms have responded by offering customized products and services when states have demanded it. But states must be diligent by codifying statutes that prevent pensions from endorsing social or political agendas through their investment strategies and proxy votes and require pensions to actively monitor their investment managers and advisors on these matters.

“Investment managers must remain focused on their primary goal, which is maximizing returns for stakeholders and not advancing political or social agendas under the pretense of managing risk. By reinforcing fiduciary responsibility and resisting the encroachment of ESG activism, state pensions will uphold their duty to beneficiaries and contribute to a more stable and prosperous economy.”  – Brent Bennett, Policy Director, Life:Powered.

Read the research paper here.

Download the one-pager here.

More on ESG investing.