As environmental, social and governance (ESG) concerns become more prominent in public pension plans’ strategies, sponsors sometimes struggle to justify their actions without the benefit of a clear consensus on how to measure ESG success. Board members, in particular, are feeling squeezed between divergent opinions on whether ESG is a core part of their fiduciary duty.

Different investors take different approaches to ESG and its role in a portfolio, and they use different metrics and frameworks to measure success, with competing frameworks being offered by the Global Reporting Initiative, the Sustainability Accounting Standards Board, UN Principals for Responsible Investment, G20’s Financial Stability Board’s Task
Force on Climate-Related Financial Disclosures (TCFD), and International Integrated Reporting Committee, among many others. The continued debate about how to approach ESG investing leaves plans sponsors vulnerable to critics who call ESG a distraction from investors’ core mission of maximizing returns.

The California Public Employees’ Retirement System (CalPERS), which devoted a portion of its January meeting to discussing ESG strategy, is often caught in the crossfires on ESG debates.

“It’s almost ‘damned if you do, damned if you don’t,’” CalPERS board member Richard Costigan said at a recent board meeting. “As a fiduciary, if I focus too much on this, I risk lower returns which opens me up to [criticism]. Now we’re talking about inaction raising the risk of a fiduciary breach. As a trustee I’m sort of stuck in the middle.”

Read the full story: Public pensions forced to play defense on ESG investments

Published by Money Management Report/Pageant Media.