Milken: CIOs Say Divestment Isn’t the Way

To change problematic companies, institutional investors say to stay in and help restructure ESG policies.

Two CIOs from both coasts agreed that while divesting from controversial companies looks good on paper, it does nothing for the companies themselves in terms of behavior.

Chris Ailman of the $225 billion California State Teachers’ Retirement System (CalSTRS) admitted that the recent string of divestments from oil and gun companies “hasn’t made the world a better place.”

“If we divest from guns, we don’t change the equation,” obliged Vicki Fuller of the $192 billion New York State Common Retirement Fund. “If you try to limit these issues to one microcosm, you don’t get there,” she said.

The discussion occurred at a Tuesday panel at the Milken Institute Global Conference called “Institutional Investors: Focusing on Long-Term Value in a Short-Term World,” where both Ailman and Fuller spoke of the growing pressures they are facing in regard to divestment from companies that often stir debate among political parties.

The two CIOs concluded that the answer isn’t divestment from the companies, but working with them to change their environmental, social, and governance (ESG) policies. Fuller and Ailman said that this method would affect share values properly.

Ailman said that institutional investors should force companies into looking past quarterly periods for their earning potentials in hopes that they could see the bigger picture. He said that what has brought about social change was not divestment, but taking action and bringing about change physically.

He compared the experience to disliking a school curriculum and leaving the district instead of protesting the school board. “Does the school district care that you sold and moved?” he said.

Fuller said that by divesting, entities such as CalSTRS and NYS Common would lose their “place at the table” and their voice to help change the controversial companies’ ways. She said that institutional investors need their companies to be thinking “long term about how they are going to be able to continue to generate their earnings.”

“If you want to solve the social problem, you’ve got to get the right tools,” he said. “That’s more powerful for society and us than it is to just turn our back and run away,” Ailman said.

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