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Effective Climate-Related Investing Requires Alliances Among Pension Funds and Other Institutional Investors

12th Annual Employee Benefits

and Social Insurance National Conference

Boston University School of Law

Israel Goldowitz, Esq. | The Wagner Law Group

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US Pension Environment

Private Sector

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Source: US Department of Labor (DOL 2019)

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Public Sector

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Pension Plans:

734,000

DB: 47,000

DC: 687,000

Active Members:

98 million

DB: 13 million

DC: 86 million

Assets:

$10.7 trillion

DB: $3.3 trillion

DC: $7.4 trillion

Pension Plans:

6,000

Active Members

15 million

Assets

$5.8 trillion

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US Pension Environment

US Retirement Assets

    • Annuity Reserves $2.4 Trillion
    • Public DB Pension $7.9 Trillion
    • Private DB Pension $3.6 Trillion
    • DC Pension $10.4 Trillion
    • IRA $13.2 Trillion

Total $37.5 Trillion

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Source: Investment Company Institute (4/30/22)

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Largest Pension Plans Worldwide

1. World - Japan Govt. Pension ($1.7T) …

4. US - Federal Thrift Savings Plan ($650B) …

7. State - California Public Employees ($430B) …

15. Municipal - NYC Retirement ($230B) …

24. Private sector - Boeing – ($130B, half DB, half DC) …

Source: Pensions & Investments (12/31/20)

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ESG – Yes, No or Maybe

Jurisdiction

Permitted in Investment Decisions

Included in Investment Policy

Federal

Under Review

Not Required

California

Yes

Yes

New York State

Yes

Yes

Illinois

Yes

Yes

New York City

Yes

Yes

Source: DOL, NASRA, Illinois, NY State, and NY City websites

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Climate

  • President Biden’s May 2021 Executive Order directs all agencies to consider effect of programs on climate.

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    • DOL Proposed Rule on ESG and Request for Information on Climate has drawn comments from business, financial services, multiemployer plans, and environmental groups, among others. Final rule pending with OMB.
    • SEC Proposed Disclosure Rule has resulted in a warning from the Ranking Members of House Financial Services, Appropriations, and Oversight & Reform committees of a “major questions” challenge.
    • SEC Division of Examinations to emphasize ESG disclosure and proxy voting in accordance with client mandates.

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Criticisms and Headwinds

  • ESG funds returns largely due to fees for active management (Boston College Center for Retirement Research).
  • Portfolio companies often fall short of ESG goals or are greenwashed (Columbia Univ. – London School for Economics).
  • Pushback on “woke investing,” investing in China, and other issues by members of Congress, State Treasurers, and others.
  • Retail investors generally unaware of ESG.

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Scale of Institutional Investors

  • Largest in US (rounded)
    • Money Manager – Black Rock ($10T)
    • Bank – JP Morgan ($3T)
    • Pension Fund DC – Federal TSP $800B)
    • Insurance Company – Berkshire Hathaway $700B)
    • Pension Fund DB – CalPERS $500B)
    • Mutual Fund – Vanguard Total Stock Market Index ($500B)
    • Hedge Fund – Bridgewater ($100B)
    • Pension Fund DC (Private) – Boeing ($80B)
    • Endowment – Harvard ($40B)
    • Foundation – Gates ($40B)
  • Climate Action 100+ -- includes CalPERS, CalSTRS, ERS of Hawaii, LACERA, Maryland RS, NYC PF, NYS Common RF, NYS TRS, SF ERS, Seattle ERS, Bd, of Pen. Presb. Ch. (US), Vermont Pension

Sources: Climate Action 100+, Federal Reserve, Investopedia, Pension & Investments, Seeking Alpha, The Balance (2022)

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THANK YOU

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Israel Goldowitz

Office: (202) 969-2800 | Cell: (202) 413-5602

Email: IGoldowitz@wagnerlawgroup.com

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