Public pensions shouldn’t be hijacked to push social goals

By Oregon State Representative Ed Diehl,
Press Release,

Opposition statement to HB 2200:

Public pension plans should never be used to advance social goals or political policy objectives that are inconsistent with the fiduciary interests of the fund. Yet that is exactly what House Bill 2200 proposes, and it is the textbook definition of political activism. Imposing politically motivated investment controls of any kind on public pension plans violates core fiduciary standards and puts taxpayer dollars at significant risk.

Pension fund investment managers have a fiduciary responsibility to manage these funds exclusively to best meet the financial needs of plan participants. For public employee retirement plans, this means ensuring long-term income stability and sustainability, while managing risk prudently. The investment criteria outlined in House Bill 2200 are incompatible with these fiduciary responsibilities and the objectives of retirement plans.

Proponents of House Bill 2200 argue that the fund can achieve a “carbon-free” portfolio by 2050 while maintaining its fiduciary duty to taxpayers and pensioners. That is simply not the case. These two goals are in direct conflict. You cannot claim to “go carbon-free by 2050” and “invest in the fiduciary interest of the plan” at the same time. It’s like ordering a triple-bacon cheeseburger with a side of kale and calling it a diet.

This conflict has already been tested in the courts. American Airlines experienced this firsthand when they invested retirees’ funds to meet climate and other social goals. Pensioners sued, claiming their fiduciary duty had been violated, and a federal judge agreed. The court found that the airline’s activist investing with their ERISA plan breached its fiduciary duty of loyalty by prioritizing non-financial, non-pecuniary goals—similar to those proposed in House Bill 2200.

The courts aren’t the only ones saying these goals are incompatible—investment performance data supports this conclusion. The Harvard Business Review recently highlighted in its article, “An Inconvenient Truth About ESG Investing,” that environmental, social, and governance (ESG) investing, like what is proposed in House Bill 2200, underperforms funds that focus on fiduciary standards. This is true in the United States and in the European Union, where research by the European Corporate Governance Institute found ESG funds had lower returns and higher risks compared to traditional investments.

Oregon law is clear: public pensions must be invested solely in the fiduciary interest of the fund. Taxpayers and pensioners demand this standard—and rightfully so. Oregon taxpayers bear the ultimate responsibility for covering pension obligations if the investment fund underperforms. Most of Oregon’s Public Employee Retirement System (PERS) operates as a defined-benefit plan, meaning payouts to retirees are guaranteed, regardless of the fund’s performance. This puts Oregon taxpayers directly on the hook for any shortfalls.

The situation is already dire. In 2014, Oregon’s PERS unfunded liability was $12 billion. By the end of 2023, it had doubled to $24 billion, with total liabilities reaching $106 billion. Diverting priorities away from fiduciary interests, as proposed by House Bill 2200, will only deepen this crisis.

I believe I understand the intentions of the authors of this bill. They are under immense political pressure to decarbonize the fund and are attempting to walk a tightrope between conflicting interests. However, this is precisely why this bill should not pass—it is politically motivated and does not serve the best interests of the fund.

Oregonians cannot afford anything less than full commitment to fiduciary standards in managing our pension funds. I strongly urge a NO vote on House Bill 2200. Thank you for your time and consideration.

https://hbr.org/2022/03/an-inconvenient-truth-about-esg-investing

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