State treasurer elections bring change, status quo for pension funds, ESG

State treasurer elections across the country indicate some changes and some status quo for key priorities of the often overlooked state office, which can include state pension funds, auto IRA programs and anti-ESG policies.

Some newly-elected treasurers plan to make major changes to their state pension funds — whether that means revamping the governance of the fund or altering its investment strategy. Others are focused on state auto IRA programs, which create a state-sponsored retirement plan for those whose employers don’t offer one. Notably, several candidates in reliably red states promise to continue the promotion of anti-ESG policies.

Ben Cushing, campaign director of the Sierra Club's Fossil-Free Finance campaign, said he thinks "it will continue to be a pretty bifurcated landscape in the U.S." when it comes to ESG investing, as some states have political leaders "who are hostile to sustainable investing practices and are hostile to action on climate change and inequality."

However, Cushing said he believes that in other states, where leaders "understand the fundamental necessity of incorporating sustainability risks and managing them appropriately...there will continue to be strong demand for ESG investing practices.”

"Institutional investors understand that...climate issues, fires (and) floods are real economic factors. They’re not political issues," contended Steven Rothstein, founding managing director of the Ceres Accelerator for Sustainable Capital Markets.

Here’s a look at the results of key state treasurer races and what their outcomes indicate:

Republican Brad Briner defeated Democratic state Rep. Wesley Harris in the race for North Carolina treasurer.

Briner is the former co-CIO of investment firm Willett Advisors, which manages the philanthropic assets of Michael R. Bloomberg, including those of Bloomberg Philanthropies. He left the position to run for office.

Briner has big plans for the $123 billion North Carolina Retirement Systems, Raleigh, for which the state treasurer serves as sole trustee.

The former CIO wants to overhaul the governance of the fund, so more than just the treasurer has a say in its investment decisions. North Carolina is one of only three states that has a “sole trustee” model for its state pension fund, which Briner says should change.

On his campaign website, he cited a 2014 study commissioned by the state treasurer’s office which recommended switching to a board of trustees model. He added, “As a general matter, small groups make better investment decisions than solo actors. That is why successful private sector investment firms have investment committees and why state pension plans have almost all followed suit.”

The Republican also calls for shifting NCRS’ asset allocation to focus on other asset classes such as real estate and traditional energy, which he said can provide better returns. He recommends the fund engage in co-investments, allocate more capital to fewer managers and reduce manager constraints, according to his website.

Briner also signals a negative view of ESG, stating on his website, “the ESG crowd has driven a lemming-like abandonment of sectors like traditional energy sector that — like tobacco a generation ago — creates compelling returns for the non-politicized investors who remain.”

North Carolina enacted an anti-ESG law in June 2023, after Republican lawmakers voted to override Democratic Gov. Roy Cooper's veto of the bill. The law requires that the treasurer only evaluate investments based on pecuniary factors and blocks state entities from considering ESG factors when hiring, firing or evaluating employees and awarding state contracts.

Incumbent Treasurer Stacy Garrity defeated Democratic candidate Erin McClelland, securing another four years for the Republican to enact a state auto-IRA program in Pennsylvania.

On her website, Garrity said she will “continue her fight for a tax-deductible 401(k)-style retirement savings program for Pennsylvanians not currently covered by pensions or other retirement savings vehicles.”

The Pennsylvania House of Representatives passed a bill to create the Keystone Saves Program in June 2023: a state-run retirement program for people whose employers of five workers or more do not currently offer a retirement plan. The legislation would require such employers to participate in the program, though there would be no penalty for employers choosing not to, and the bill specifically states no penalties can ever be assessed. The bill has yet to move in the state Senate, where it awaits an uncertain future.

The Pennsylvania treasurer serves on approximately 20 boards, including those overseeing the $75.2 billion Pennsylvania Public School Employees' Retirement System and the Pennsylvania State Employees' Retirement System, which had a $36.4 billion defined benefit plan and $189.4 million defined contribution plan as of Dec. 31, 2023.

Though the race has yet to be called as of press time Nov. 7, Democratic State Sen. Elizabeth Steiner is leading in the Oregon treasurer race against Republican Sen. Brian Boquist, with 49% of the vote.

Steiner, who is also an associate professor at Oregon Health & Science University, said on her campaign website that she wants to reduce the unfunded liabilities of the $94.5 billion Oregon Public Employees Retirement Fund, which had an unfunded liability of $28 billion as of Dec. 31, 2022.

Steiner told The Oregon Capital Chronicle that she would invest the pension fund's portfolio "with an eye towards long-term stability, rather than volatile short-term gains."

She was also a chief sponsor of state legislation requiring OPERF to divest up to $1 billion in coal-related holdings, stating on her website that she wants to "leverage the power of Oregon's investments to build toward a net zero portfolio and push companies to adopt clean energy goals."

Democratic Treasurer Mike Pieciak won re-election in Vermont, defeating Republican candidate Joshua Bechhoefer by capturing 60% of the vote.

The Vermont state treasurer is one of the commissioners on the Vermont Pension Investment Committee, which manages the investments of the $6.4 billion Vermont State Retirement Systems.

Pieciak said that he would work “to fully fund the state’s pension system and drive down unfunded liabilities,” according to his campaign website, as he also worked on reforming Vermont’s pension funds before he became treasurer.

While leading the state's Department of Financial Regulation, Pieciak worked with state legislators to craft a bill boosting the Vermont State Teachers' Retirement System and the Vermont State Employees' Retirement System, which had funded ratios of 52.9% and 67.6%, respectively, at the end of 2021. The bill, which became law in 2022, called for teachers and state employees to gradually boost their contributions over a three-to-five-year period and accept more modest cost-of-living adjustments, so the state could make a $200 million payment to pay down the pension systems’ unfunded liabilities in fiscal year 2022. It also allowed the state to make ongoing additional payments beginning in 2024 that ramp up to $15 million and remain at that level until the pension systems are 90% funded.

While serving as treasurer, Pieciak also worked with state lawmakers on a bill to establish a state-run auto IRA program known as VT Saves. In June 2023, Vermont Gov. Phil Scott signed the bill into law, requiring employers with five or more workers to enroll in VT Saves or face penalties. The program is administered by the Vermont treasurer's office.

In Republican-controlled states, three winners of state treasurer races plan to continue promoting anti-ESG policies — a norm now well-established in red states across the country.

The Sierra Club's Cushing said that "the polarized debate around ESG doesn’t often actually resemble the reality of what ESG is or is actually meant to be."

Anti-ESG advocates often contend that sustainability risks "are immaterial and are just about social values, when in fact they’re clearly relevant to business and financial decisions," Cushing added.

For Rothstein, who leads the Ceres Accelerator for Sustainable Capital Markets, understanding companies’ risks and opportunities “is just good business. It’s fiduciary duty.”

Rothstein also noted that while state legislators across the country have introduced more than 160 anti-ESG bills this year, 96% of them did not pass.

In Arkansas, Republican Secretary of State John Thurston won the treasurer’s race against John Pagan, the Democratic candidate, and Michael Pakko, the Libertarian candidate.

Both Pagan and Pakko publicly criticized an Arkansas law passed in 2023, which set up an ESG oversight committee at the treasurer’s office. The legislation requires the committee to compile a list of financial services firms that discriminate against companies based on ESG considerations, such as energy, fossil fuel, firearms or ammunition companies. Such firms face possible divestment if they cannot make their case to avoid being placed on the list, though there's also an exemption in the law, allowing the state to refrain from selling an investment if doing so would entail a loss.

After announcing his run for treasurer, Thurston told the Arkansas Democrat-Gazette in 2023 that he was “committed to working with the ESG oversight committee, the governor and the Legislature to ensure that Arkansas tax dollars are not being used by out-of-state providers imposing their viewpoints and standards on Arkansas investment opportunities.”

Missouri Treasurer Vivek Malek, a Republican, won re-election as a staunch critic of ESG investing.

Malek said he is “committed to preventing taxpayer funds from being influenced by ‘woke’ special interests,” and “supports a ban on state investments that adhere to liberal ESG guidelines,” according to his campaign website.

As a member of the board of trustees of the $9 billion Missouri State Employees' Retirement System, Jefferson City, Malek has also advocated for divesting from Chinese companies.

In December, the MOSERS board voted to sell most of its investments in Chinese companies, according to the Missouri Independent. Malek’s campaign said that the move was “protecting taxpayer money from the risks associated with investing in a nation that has repeatedly proven adversarial,” in an email to supporters.

In Utah, Treasurer Marlo Oaks also won re-election as a Republican who's openly critical of ESG investing.

Oaks was one of several state officials, including the governor, to sign a letter in 2022 objecting to S&P Global's decision to publish ESG scores for U.S. states. He also has a tab on his campaign website titled, “Stop ESG.”