By: Mark Glennon*

It’s called ESG — investing with environmental, social and governance goals in mind — and it’s the law now for how virtually all Illinois state money gets invested, including pensions.

DLA Piper, a leading law firm, just published a nice summary of the Illinois law: As of New Year’s Day, the Illinois Sustainable Investing Act (ISIA) requires every Illinois “public agency” and “governmental unit” to “develop, publish, and implement sustainable investment policies applicable to the management of all public funds under its control.”

As a practical matter, ESG means following whatever social justice goal is in fashion. It’s often political. No-no investments have included, for example, fossil fuel producers, gun makers and contractors working on the wall on the Mexican border. Illinois Treasurer Michael Frerichs tried to use his investment clout to to push Facebook around to solve the problems, as he saw them, of fake news, ads by Russian operatives and hate speech.

It’s a big deal now and is having an impact on where both public and private money is invested. “The ramifications are vast,” as DLA Piper wrote.

Does it undermine the goal of maximizing returns? Yes, of course it does — by definition.

But ESG supporters routinely claim that it does maximize returns, and parts of the Illinois law purport to preserve fiduciary standards for making money.

That’s illogical on its face. If ESG means maximizing returns then there is no such thing as ESG — it would just mean investing to make the most money possible as most investors do. You can’t have it both ways. Either you invest with the sole goal of making the most money possible or you invest to achieve other goals as well. Take your pick.

*Mark Glennon is founder of Wirepoints.

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Shirley Miller
2 months ago

This law actually doesn’t prohibit any investments: “Section 20. Consideration of sustainable investment
factors in decision-making.
(a) A public agency shall prudently integrate
sustainability factors into its investment decision-making,
investment analysis, portfolio construction, due diligence,
and investment ownership in order to maximize anticipated
financial returns, minimize projected risk, and more
effectively execute its fiduciary duty.”
It encourages investment in sustainable business but doesn’t prohibit any kind of investment as long as financial returns are maximized.

jeff
2 months ago

you need to be in the right political party, and you need to toe the line to get money from the state if you are a fund manager. A number of years ago, I pitched the state for money-for a venture fund. My partner at the time was Cuban. She, notice I said she, and I were talking with the state official. They said she wasn’t “hispanic” enough. Said if she was Puerto Rican or Mexican it would be better.

Poor Taxpayer
2 months ago

Just raise taxes on the poor honest working taxpayer. Cops, Teachers, and Firemen need luxury homes in Florida, Luxury cars and boats, to go out to expensive restaurants every night.
Do you feel like you are being screwed? You should because you are.
Move out of Illinois as fast as your legs with take you. Run do not walk and do not look back.

michael marek
2 months ago

amen mark…when the checks stop coming or bouncing we will see how interested the pensioners in sustainable investing

debtsor
2 months ago
Reply to  michael marek

We’re a long way from checks bouncing. Are your roads still being plowed in the winter? Are the neighborhood playgrounds still open with safe equipment? Are police officers still patrolling? Because eventually those things will be cut to the bone just to pay pensions. Eventually, nearly all tax dollars from some communities will be used just to pay pensions. It will be crazy. Harvey is nearly there.

p
2 months ago

How does this new law square with the common law of trusts or with state law? Can the IL Sup Ct issue advisory opinions? There is varied authority in regard to a fiduciary being protected if it follows investment directions, but I think a Chicago fiduciary was culpable in the Enron situation. The state of Illinois describes the duties of fiduciaries as follows: Loyalty: “A fiduciary … shall discharge his or her duties with respect to a retirement system or pension fund solely in the interest of the participants and beneficiaries and … for the exclusive purpose of … providing… Read more »

michael marek
2 months ago
Reply to  p

excellent response…violation of fiduciary respsonsibilty I believe is a felony

Willowglen
2 months ago
Reply to  Mark Glennon

Mark – likely premature to come to any large opinion, but the recent stock market decline will likely accelerate the demise of the pensions. Can you imagine what happens in Chicago if one of the pensions goes on a pay as you go status? The only way to raise that kind of revenue quickly is through property taxes. The social justice investing is akin to trying to save your golf clubs when your house is burning to the ground.

NB-Chicago
2 months ago

Frerichs and crew could buy up all the foreclosured homes in harvey and beyond and rent them out as affordable housing–wouldnt that qualifiy as ESG investing,,,,nah. More hypocrite feel good bs for the promised ones on your dime

s & p 500
2 months ago

So if pension funds invest in social causes and they don’t generate sufficient returns and then schools can’t afford hand sanitizer or hot water how does that figure into the mission statement of the state?

https://www.inquirer.com/news/coronavirus-philadelphia-school-district-supplies-sanitizer-wipes-20200305.html

Riverbender
2 months ago

Investing in political and moral causes is generally not the best way to value investments…to each their own.

Douglas
2 months ago

I leave in May to check out New Hampshire. It’s either Phoenix (where I have family) or New Hampshire as a free stater. I have lived my entire life in south suburban oak forest and have had enough. Yes, taxes are a big part of this (we pay 8k a year of property taxes for a 200k house), but it’s also the trampling of individual liberty. Above illustrates what I mean.

My tax money shouldn’t be used for abortions, social justice etc.

Investor A
2 months ago

On its face, it violates the diminished and impaired clause.

nixit
2 months ago

If pension plan participants are willing to assume all the risk (loss) of ESG investments, then go right ahead. But experience tells me pensioners are risk averse, if they comprehend the concept of risk at all. Let them socially engineer financial returns on their own dime.

joe blow
2 months ago

get woke go broke!

Governor of Alderaan
2 months ago
Reply to  joe blow

They get woke, you go broke

s & p 500
2 months ago

I can’t wait to find out if “Mulan” is going to flop. “No Time to Die” is moved back to Nov. release. Rotten Tomatoes is broke.

https://www.cbr.com/review-bombing-could-be-the-final-nail-in-rotten-tomatoes-relevancy/