Statewide races spotlight pension investments and debate about ESG

In several statewide races in the midterm elections, the outcome could have a significant impact on state pension plans. Environmental, social and governance investing has become a key issue for many races, as Republican officials across the country have recently labeled the movement as "woke" and too political.

Democrats, on the other hand, are encouraging investment policies that consider climate change, gender equality and corporate governance.

For institutions and pension funds, there are several key state-level races to watch:

In California, both the state controller and treasurer will be on the ballot, and both officials serve on the boards of the $426 billion California Public Employees' Retirement System and the $288.6 billion California State Teachers' Retirement System.

State Controller Betty Yee has reached her term limit, so Democratic candidate Malia Cohen will be running against Republican candidate Lanhee Chen.

In her campaign plan, Ms. Cohen said she will work to make sure both retirement systems are promoting a greener future, including pushing for net-zero emissions by 2040.

Mr. Chen said on his campaign website that he will make sure both pension funds "clearly tell taxpayers how much they will owe once retirement benefits for current and former government employees come due," and criticized CalPERS for its current funding estimates.

Incumbent Treasurer Fiona Ma, a Democrat, is running for re-election this year against Republican candidate Jack Guerrero.

Mr. Guerrero has criticized the way that the state has handled both CalPERS' and CalSTRS' unfunded liabilities. According to his campaign website, he plans to increase transparency around the funds and "safeguard state assets."

In September, Ms. Ma joined a coalition of 14 public finance officials across the country criticizing anti-ESG policies that have been passed by Republican officials.

She was previously in support of asking CalPERS to divest from fossil fuels, though a bill that would have required both pension funds to do so came to a halt in June.

Both CalPERS and CalSTRS opposed the bill, as they said they would rather work with fossil fuel companies than divest.

Ms. Ma faces a lawsuit filed last July by a former employee accusing her of sexual harassment, racial discrimination and wrongful termination.

The incumbent Treasurer Dave Young will be running against Republican candidate Lang Sias in Colorado this November.

Mr. Young also joined the group of 14 public finance officials in September to push back against anti-ESG legislation. He also helped launch the statewide retirement program that Gov. Jared Polis signed into law, known as Colorado SecureSavings, as his office is responsible for managing it. On his campaign website, Mr. Young boasts his work in strengthening the $66.1 billion Colorado Public Employees' Retirement Association fund, as he serves on the PERA board of trustees.

Mr. Sias also advocates for strengthening PERA, and his record as a state representative in the Colorado House shows he voted for several PERA reforms over the past four years. He also currently serves on a legislative subcommittee with oversight of PERA, according to his campaign website.

In Rhode Island, Republican candidate James Lathrop is focusing much of his campaign for state treasurer on reforming the management of the state pension system.

Rhode Island's treasurer leads the State Investment Commission, which oversees the $9.9 billion Rhode Island Employees' Retirement System. On his campaign website, Mr. Lathrop said many retirees are not receiving their promised cost-of-living adjustment increases, and he "will advocate for changes that include a phase in of COLAs at funding rates of 60%, 70%, and 80%."

He also promised to promote legislation that would partially exempt taxes on pension benefits for those who are not receiving COLAs.

Mr. Lathrop also pledged to work to lower the state's investment fees to 1.25% from 1.8% by the end of his first year in office and increase transparency for the office. He created a "transparency pledge" that includes disclosing investments and the fees associated with investments, according to his website.

James Diossa, Mr. Lathrop's Democratic competitor, said he would continue to build off of current Treasurer Seth Magaziner's "Back to Basics" investment policy. The policy divested more than $500 million from certain hedge funds, which "come with high fees but do little to decrease volatility," Mr. Diossa said in a commentary in The Providence Journal.

He added: "The state has instead sought an investment strategy more likely to exceed benchmarks by lowering fees while remaining responsive to market volatility."

Mr. Diossa is also the former mayor of Central Falls, R.I., and said he helped "navigate (the) city out of bankruptcy" on his campaign website.

Erick Russell, a Democrat and private attorney, will face off against Republican state Rep. Harry Arora in Connecticut's election for treasurer this year.

The treasurer serves as principal fiduciary for the $42.2 billion Connecticut Retirement Plans & Trust Fund. Shawn T. Wooden, the current treasurer who took office in 2019, announced he would not be seeking re-election in April.

On his campaign website, 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. Mr. Arora also calls for improving asset allocation on his campaign website, but said past treasurers "have used pension funds to advance their political and social agenda."

Mr. Arora filed a lawsuit in September to try and remove Jennifer Baldwin, the Independent Party candidate, from the ballot, but a judge ruled against his suit.

The incumbent Treasurer Lynn Rogers, a Democrat, will run against Republican state Rep. Steven C. Johnson on the Kansas ballot.

In a campaign news release, Mr. Johnson said that "eliminating woke ESG investment strategies" is at the heart of his campaign.

U.S. Rep. Tracey Mann, R-Kan., endorsed Mr. Johnson for treasurer and praised his plan to stop ESG investment strategies, which Mr. Mann said "put Kansas families, pensioners, and businesses last," according to the news release.

Mr. Rogers said in a commentary for the Kansas City Star that he would be in support of an auto-IRA savings program for Kansas workers without a retirement plan, as many states already have programs up and running. He called it "an initiative that could provide all Kansans more dignity and security during their retirement years."

The Kansas state treasurer serves on the board of the $24.8 billion Kansas Public Employees Retirement System.

Thomas DiNapoli, New York's incumbent state comptroller, will run against Republican candidate Paul Rodriguez. The New York state comptroller is the sole trustee of the $246.3 billion New York State Common Retirement Fund and administers the New York State and Local Retirement System for public employees.

Mr. DiNapoli has served as comptroller for the state since 2007. In 2020, he adopted a plan for the New York State Common Retirement Fund to transition to net-zero greenhouse gas emissions by 2040.

Mr. Rodriguez also ran for New York City comptroller in 2021, receiving 3.5% of the vote. On his campaign website, he said that the comptroller should remain independent, and "political ideology should not influence pension plan management. It is irresponsible to use pension assets as a political tool to fund pet projects or promote social agendas."

In South Carolina, incumbent Treasurer Curtis M. Loftis Jr. is the favorite to win against Sarah Work, a candidate with the Alliance party. The Democratic primary was canceled this year as no Democratic candidates filed for the race.

In mid-October, Mr. Loftis decided to withdraw another $200 million in BlackRock funds from the state's investments portfolios, in response to BlackRock's ESG-focused policies.

"For the past five years, I have worked systematically to remove BlackRock managed funds from our state's various investment portfolios," Mr. Loftis told Pensions & Investments in an email earlier this month. A spokeswoman for the treasurer did not provide further information about the total amount the treasurer's office has divested from BlackRock.

As treasurer, Mr. Loftis serves as the "state's banker" and manages, invests and retains custody of $60 billion in public funds, according to his website. The $38.3 billion South Carolina Retirement System is managed by the South Carolina Retirement System Investment Commission, Columbia, and Mr. Loftis serves as custodian of the commission.

In Minnesota's race for state auditor, ESG investing has become a contentious issue.

In an August debate, the candidates were asked for their thoughts on considering climate change in state investments. The incumbent Auditor Julie Blaha maintained that thinking about climate change when investing is critical.

"There are significant risks and there are significant opportunities in how climate is changing and how we're transitioning energy," Ms. Blaha said, according to a recording of a debate. "Now, there are a group of MAGA treasurers and auditors who are attempting to discredit this and the danger is that this can have significant risk for our portfolio."

Republican candidate Ryan Wilson said that investment returns should be prioritized, and "we can't disproportionately dictate that this particular risk has to be accounted for."

He added: "I will not play politics with our pensions," according to the recording of the debate.

The Minnesota state auditor is one of four members on the Minnesota State Board of Investment, which oversees $81.3 billion in assets as of June 30 for the statewide retirement systems, according to its website.

In the race for state auditor, Missouri Treasurer Scott Fitzpatrick, who has touted his anti-ESG policies, is facing off against Democrat and former state representative Alan Green.

On his campaign website, Mr. Fitzpatrick said that as treasurer, he fought against "woke environmentalism disguised as ESG initiatives for the investment of public funds."

In mid-October, the Missouri State Employees' Retirement System, for which Mr. Fitzpatrick serves as a trustee, withdrew all public equities managed by BlackRock, due to 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.