It is tricky to say which was a more volatile issue in 2022 for public pension funds operating under ESG principles — the politics or the markets.
They managed to navigate both, and this year many of them are even ratcheting up their sustainable investing agendas.
Some, like the $61.4 billion Maryland State Retirement and Pension System, Baltimore, took a page from the largest U.S. funds that added ESG specialists for their investment divisions. Although Maryland CIO Andrew Palmer first formed an ESG risk committee in 2017, last year the pension fund added a senior manager of ESG and corporate responsibility to oversee all governance for the system and the investment division, with duties that include monitoring and evaluating ESG impacts on the portfolio among other duties.
While large public pension funds are often leading the ESG charge, of the 23 top 200 defined benefit plans reporting in Pensions & Investments' 2022 survey on the largest retirement plans that use ESG factors, four were corporate DB plans: CommonSpirit Health (also known as Catholic Health Initiatives), Corteva Inc., Ernst & Young and Kaiser Foundation Health Plan Inc.
ESG experts think even more corporate plans are well along in their ESG journey.
"A large number of clients are engaged in the conversation and education around defining sustainable investing as a broad concept, and the ESG issues underlying that," said Chris Thompson, head of North American equity research for Willis Towers Watson PLC in Stamford, Conn. "A smaller subset are in fact doing something."
The Washington State Investment Board, Olympia, exemplified a robust ESG agenda in 2022. CEO Allyson Tucker and Chief Investment Officer Christopher Hanak, both newly installed, wasted no time launching initiatives to address climate change and diversity, equity and inclusion within the $130.8 billion commingled trust fund of defined benefit plan assets.
In 2023, WSIB's climate change blueprint has eight specific initiatives including updating proxy voting policies and training staff and the board. The DEI blueprint has 11 initiatives in 2023, including proxy voting policy updates and understanding what their peers and the companies they hold are doing to make it a core part of organizational culture.
Last year saw asset owners pushing for diversity, equity and inclusion in the portfolio companies they hold, and for more investment with diverse-owned managers. Even in a difficult year, market-wise, the 22 pension funds that reported assets managed by diverse- and women-owned firms had $131.7 billion with those managers as of Sept. 30, up 12.4% from what that group reported a year earlier.