New Jersey Making Big Push on ESG Investing

State pension system targets arms sales, using contractors instead of employees, and foreclosures on hurricane victims.

Since Gov. Phil Murphy took office in January, New Jersey has been pushing environmental, social, and governance (ESG) concerns in its pension investments.

In March, New Jersey withdrew its holdings in all automatic and semi-automatic firearms companies, following a nationwide divestment pattern in pension plans after a mass of shootings. In recent months, it also pressured two private equity firms against foreclosing on Puerto Ricans affected by Hurricane Maria and told Target not to work with trucking companies that see their drivers as contractors rather than employees.

This is just one step in an ESG policy the Garden State is working on for its pension investments; it also aims to tackle corporate governance reforms. There are 30 states that have adopted ESG policies for their pension funds, reports.

Chris McDonough, director of the investment division of the $77 billion State Investment Council, the agency that runs New Jersey’s pension funds, told that “ESG forces you to take a longer view.” McDonough will be leaving his post at the end of the month for a co-CIO role at consulting firm Investment Performance Services.

Murphy, a Democrat, is a big proponent of ESG investing, often speaking of a “fairer” economy as well as advocating tighter gun control laws. Prior to politics, he was an executive at Goldman Sachs.

However, at 31%, New Jersey is the worst-funded state in the country. Credit rating agencies are pushing for funding increases to its retirement plans, and a 2016 study by the Center for Retirement Research at Boston College shows funds with divestment policies earned 0.4 percentage points less than other plans. The state’s 2018-2019 fiscal budget pledged $3.2 billion toward benefit payments, but it was still less than the actuarial recommendations.

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