Both sides of debate over ESG get winners in state-level races

While final counts in some states have yet to be tabulated, four state-level Republican candidates promoting anti-ESG policies won their respective midterm races last week, and four Democrats claimed victory after running on platforms that called for more environmentally conscious investment policies.

Voters in Florida, Kansas, South Carolina and Missouri elected Republicans for various state positions who had criticized the environmental, social and governance investing movement for being too "woke." However, Democratic candidates in New York, Colorado and California defeated their opponents based on campaigns in part promoting more "green" investments.

Here's how the gubernatorial and other key races turned out:

Oregon: Democratic candidate Tina Kotek, former speaker of the Oregon House of Representatives, narrowly defeated Republican Christine Drazan, former Oregon House minority leader, in the race for governor. Independent candidate Betsy Johnson, who previously served as a Democrat in the state Legislature, captured more than 8% of the vote, with 86% of votes counted as of press time Nov. 11.

As House speaker, Ms. Kotek sponsored Senate Bill 1049, which passed the legislature in 2019. The bill requires public employees to divert some of their retirement contributions toward reducing the deficit of the $93.9 billion Oregon Public Employees Retirement Fund.

The PERS bill also was at the center of a scandal for Ms. Kotek. Another state representative accused Ms. Kotek of creating a hostile workplace in 2019 for threatening professional consequences if he did not support the bill, but the Oregon House Conduct Committee determined that Ms. Kotek did not create a hostile work environment just over a week before the election.

Florida: Republican Gov. Ron DeSantis cruised to victory in his race against former Florida governor and U.S. Rep. Charlie Crist. Mr. DeSantis is a vocal opponent of ESG investing and serves as one of three trustees on the Florida State Board of Administration. The board passed a resolution in August prohibiting the consideration of ESG factors when making investment decisions for the $182 billion Florida Retirement System, which it oversees.

In July, Mr. DeSantis also said he would propose legislation in 2023 to restrict the State Board from using any managers that make ESG considerations when investing state money. It remains to be seen whether or not he will put forward that legislation next year.

Colorado, New Mexico, Illinois: Three Democratic governors who made changes to their state's retirement systems won re-election in their respective states.

Colorado Gov. Jared Polis decisively defeated Republican Heidi Ganahl. In 2020, Mr. Polis signed a bill into law creating a statewide retirement program for private-sector employees without a retirement plan, known as Colorado Secure Savings. He also signed two pieces of legislation in March that halted a reduction in benefits for retired educators in the state under certain conditions.

Also in Colorado, Treasurer Dave Young defeated Republican candidate Lang Sias. Mr. Young joined a group of public finance officials in September to push back against anti-ESG legislation. He helped launch Colorado Secure Savings, as his office is responsible for managing it. On his campaign website, Mr. Young touted his work in improving the financial strength of the $66.1 billion Colorado Public Employees' Retirement Association fund, as he serves on the PERA board of trustees.

New Mexico Gov. Michelle Lujan Grisham also won re-election against Republican candidate Mark Ronchetti. The incumbent governor signed legislation in 2020 that provided a $55 million cash infusion to the $16.6 billion New Mexico Public Employee Retirement Association, in an effort to reduce its $6.6 billion unfunded liability. The law also increased cost-of-living adjustments to 2.5% from 2% for retirees over 75 and incrementally increased contributions for current employees and employers.

In March, Ms. Lujan Grisham signed legislation to increase employer contributions to the New Mexico Educational Retirement Board over the next two years, cutting the time it takes for the fund to reach complete funding by nine years. Separately, she helped implement a statewide retirement program for private-sector employees in February 2020.

In Illinois, Gov. J.B. Pritzker won a second term against Republican challenger Darren Bailey, an Illinois state senator. During his campaign, Mr. Pritzker touted his work on reforming the state's public pension system. His campaign website said he consolidated 650 local pension plans and reduced liabilities "by fully funding pension contributions, going above and beyond with payments and expanding the employee pension buyout program."

Illinois' five pension funds face $130 billion in combined unfunded liabilities as of June 30, 2021.

Rhode Island, Connecticut: Democratic candidate James Diossa, former mayor of Central Falls, R.I., beat Republican James Lathrop in the race for treasurer of Rhode Island. Mr. Diossa said he would continue to build off of Treasurer Seth Magaziner's "Back to Basics" investment policy, which divested more than $500 million from certain hedge funds. These funds "come with high fees but do little to decrease volatility," Mr. Diossa said in a commentary in The Providence Journal. The treasurer leads the State Investment Commission, which oversees the $9.9 billion Rhode Island Employees' Retirement System.

In Connecticut, Erick Russell, a Democrat and private attorney, was elected treasurer over Republican state Rep. Harry Arora. Mr. Russell said he plans to increase the funding ratio of the pension funds, assure optimal asset allocation and build a diverse portfolio to withstand inflation, according to his campaign website. The Connecticut treasurer serves as principal fiduciary for the $42.2 billion Connecticut Retirement Plans & Trust Fund.

California: In California, Democrats maintained control over the state controller and treasurer positions. Both serve on the boards of the $431.2 billion California Public Employees' Retirement System and the $288.6 billion California State Teachers' Retirement System.

Incumbent Treasurer Fiona Ma, a Democrat, won re-election against Republican candidate Jack Guerrero. In September, Ms. Ma joined a coalition of 14 public finance officials across the country criticizing Republicans' anti-ESG policies. She previously supported asking CalPERS to divest from fossil fuels, though a bill that would have required both pension funds to do so was halted in June, as both CalPERS and CalSTRS opposed the bill.

Democratic candidate Malia Cohen defeated Republican Lanhee Chen in the race for state controller. Ms. Cohen said in her campaign plan that she would work to make sure both state retirement systems promote a greener future, including pushing for net-zero emissions by 2040.

New York: Thomas DiNapoli decisively won re-election against Republican candidate Paul Rodriguez for New York state comptroller. Mr. DiNapoli has served as the state's comptroller since 2007, and is the sole trustee of the $246.3 billion New York State Common Retirement Fund. In 2020, he adopted a plan for the fund to reach net-zero greenhouse gas emissions by 2040. He also administers the New York State and Local Retirement System for public employees.

Kansas: Republican state Rep. Steven C. Johnson unseated incumbent Treasurer Lynn Rogers to become Kansas' next treasurer. In a campaign news release, Mr. Johnson said "eliminating woke ESG investment strategies" was at the heart of his campaign. U.S. Rep. Tracey Mann, R-Kan., endorsed Mr. Johnson and praised his disapproval of ESG policies, which Mr. Mann said "put Kansas families, pensioners, and businesses last," according to the news release. Kansas' treasurer serves on the board of the $24.8 billion Kansas Public Employees Retirement System.

South Carolina: Incumbent Treasurer Curtis M. Loftis Jr. unsurprisingly claimed victory against Sarah Work, a candidate with the Alliance party, as no Democratic candidates filed for the race. In October, Mr. Loftis withdrew another $200 million in BlackRock funds from the state's investment portfolios, responding to BlackRock's ESG-related policies.

Mr. Loftis told Pensions & Investments last month that he has "worked systematically to remove BlackRock managed funds" for the past five years, though a spokeswoman for the treasurer did not share the total amount the office has divested from BlackRock.

Missouri: In Missouri's race for state auditor, current Treasurer Scott Fitzpatrick defeated former state Rep. Alan Green. Mr. Fitzpatrick said that as treasurer he fought against "woke environmentalism disguised as ESG initiatives for the investment of public funds," according to his campaign website.

In mid-October, the Missouri State Employees' Retirement System, which Mr. Fitzpatrick serves as a trustee of, sold off all public equities managed by BlackRock, citing the company's ESG initiatives. MOSERS had $8.2 billion in assets as of June 30.

The Missouri state auditor is responsible for auditing all state organizations and ensuring the proper use of public funds. Missouri Gov. Mike Parson, a Republican, will appoint the new treasurer to replace Mr. Fitzpatrick.