New Institute Challenges ESG-Minded Divestment Movement

Group decries push to dump fossil-fuel stocks, saying that will hurt returns.

A new pension-focused institute has been created that seeks to challenge nationwide efforts to convince public pension funds to divest from companies for environmental, social, or governance (ESG) reasons.

The Institute for Pension Fund Integrity says many of the stocks that the ESG movement shuns generate good returns, so dumping them will harm pension portfolio returns. The group said it wants to ensure that state and local leaders are held responsible for their choices in public pension investment, and “to keep plan managers from placing politics ahead of prudent investment.”

It advocates four core principles in public pension management: adherence to fiduciary responsibility; balanced economic, social, and governance factor investments; long-term pension fund return; and data-driven investment. The institute’s president is Christopher Burnham, chairman of strategic advisory services firm Cambridge Global Advisors, a former Connecticut state treasurer, and a former undersecretary general at the United Nations under President George W. Bush.  

“At a time when public pensions are dramatically underfunded, and both inside and outside stakeholders push for politically-driven divestment, something has to be done,” said Burnham in a release. “Public pension fund managers have a fiduciary responsibility to their beneficiaries to make rational decisions based on risk and return, not politics.”

The institute said it will provide resources and commentary from thought leaders in the public investment and retirement fields, and coincided its launch with the release of a white paper titled “Fiduciary Responsibility; Getting Politics out of Pensions.”

The white paper argues that if a fund manager is investing based on “political decisions” and not purely on the risk or return, then they are weakening the fund and “undermining its integrity.” It also strongly objects to the act of divesting from companies for almost any reason that isn’t 100% financial-based.

“In order to make sound investments for maximum returns, fund managers cannot divest from huge sectors of the economy, simply because politicians urge them to,” said the white paper. “Instead, they must be guided by prudent investment strategies and enforce a diverse investment fund without the influence of politics.”

The paper cited the push for divestment from energy companies and nuclear weapons manufacturers as being counterproductive to a pension fund’s fiduciary duty.

“The numbers don’t lie: those companies have incredibly well-performing stocks and provide reliably strong returns, even during economic downturns,” said the institute, which also objects to public pension funds divesting from companies that earn revenue from fossil fuels.

“Fossil fuel companies represent some of the best-performing and most-reliable stocks available,” said the paper, adding that they are noted for having extended rates of return and reliable dividends over decades of investment. It also criticized New York City’s proposal to divest its public pension funds from fossil fuel companies, saying divestment not only will not solve New York’s pension problems, but is likely to only make them worse.

“Divestment is not a responsible investment strategy,” said the paper, “and any public pension manager that pushes for that is not executing their fiduciary responsibility appropriately.”

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