What does ESG do?

The Center for Retirement Research (CRR) at Boston College has a policy brief out on ESG (environmental, social, and governance) investing of pension funds and the like, something in which the UC Regents as trustees have engaged in recent years.

Below is a summary and conclusion. But before we reproduce them, let me disabuse you if you are thinking that CRR is some kind of right-wing or business-oriented think tank. It isn't. Its director is Alice Munnell. You can Google her name or just go to:

https://www.bc.edu/bc-web/schools/carroll-school/faculty-research/faculty-directory/alicia-munnell.html

Here is a summary:

• Public pension plans have engaged in social investing since the 1970s in response to state mandates.
• More recently, the plans themselves have embraced a “new” form of investing that incorporates environmental, social, and governance (ESG) factors.
• ESG investing is based on the notion that taking account of non-financial factors will lead to better investment outcomes.
• Some also believe ESG investing can further socially beneficial practices.
• The evidence suggests, however, that social investing: 1) yields lower returns; and 2) is not effective at achieving social goals.
• Hence, any form of social investing is not appropriate for public pension funds.

Source: https://crr.bc.edu/briefs/esg-investing-and-public-pensions-an-update/  

Conclusion:

The evolution of social investing from economically targeted investments and state-mandated divestments, where public plans clearly sacrificed return, to shareholder engagement and ESG investing, where the goal, at least, is to maintain market or better returns, is definitely a step forward. But both data and theory show that stock selection is not the way to reduce smoking or slow the rise in the earth’s temperature. And focusing on social factors, at least for public pension plans, does not appear to be costless – plans earn less in returns and fail to capture beneficiaries’ interests. Most importantly for public plans, the people who are making the decisions are not the ones who will bear the brunt of any miscalculations. 

The brief is at https://crr.bc.edu/wp-content/uploads/2020/10/SLP74.pdf

The Regents and the Regents' Investments Committee sometimes invite guest speakers. Perhaps Munnell might be invited to some future meeting.

Here is what the former chief financial officer of UC, Peter Taylor, had to say back in 2014:

Or direct to https://www.youtube.com/watch?v=ZTXbABD-3o4.