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Sustainability Matters

Public Pensions Overwhelmingly Vote for ESG

Support crosses party lines, often exceeding that of ESG-focused funds.

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From their early adoption of the United Nations’ Principles for Responsible Investment to leading the charge on transitioning to net-zero emissions portfolios, public pension funds have long been at the forefront of sustainable-investing practices. In the often-overlapping realms of proxy voting and environmental, social, and governance investing, that pattern has held true.

Using 2021 public fund proxy-voting data, our recently published research shows that on key resolutions ranging from climate change and political spending to workers’ rights and pay equity, public pension funds are among the strongest proponents of these issues. We identified a list of 72 key resolutions by analyzing all shareholder resolutions for public U.S. companies that received at least 40% support of independent shareholders. This focus on independent shareholders excludes the influence of insider shareholder votes to better approximate broad market sentiment.

Our sample of U.S. state and local municipal defined-benefit public pension funds, which invest on behalf of almost 14 million of their working and retired participants across $3.4 trillion in assets, showed a higher rate of support for almost all of these 72 resolutions compared with support from general shareholders as well as ESG-focused funds. As shown in Exhibit 1, on average, public pension plans voted 90% of the time in favor of ESG shareholder resolutions, while ESG-focused funds averaged 85%. Key shareholder resolutions garnered an average 63% rate of support across the 72 key ballot items from general shareholders.

Exhibit 1: Public Pension Funds Overwhelmingly Support Key ESG Resolutions Versus General Shareholders

A bar chart showing various entities' levels of support for 72 key ESG shareholder resolutions in 2021.In 2021, public pension plans showed a higher rate of support for ESG shareholder resolutions.

Sources: Morningstar, FiveThirtyEight.com, and state agencies.

What’s more, support crossed party lines. Using the FiveThirtyEight.com Partisan Lean Score, we found that the average level of support from public pensions based in Democratic-leaning states, split states, and Republican-leaning states all outpaced support from general shareholders by double-digit percentage points. Public pensions based in Republican-leaning states had lower average support levels than public pensions based in Democratic-leaning states, and split states fell in the middle.

But in an environment that sometimes paints ESG with broad brush strokes of being wholly “good” or “bad” depending on whether one is a Democrat or Republican, the results offer some evidence of how, outside of the political arena, there’s broad agreement on the merits of at least the proxy-voting aspect of ESG investing.

Public pension funds also tend to lead ESG-focused funds in their support of ESG-linked resolutions. Among U.S. ESG-focused funds, support for key ESG resolutions stood at 85%—somewhat lower than the 90% aggregate level of support by the average public pension fund. Exhibit 2 shows how public pension funds and the average ESG-focused fund compare with the top 10 asset managers (by ESG assets under management) of ESG-focused funds.

Exhibit 2: Public Pension Funds Support ESG Resolutions More Than the Average ESG-Focused Fund

A bar chart showing how public pension funds' support of ESG-linked resolutions compares with the the average ESG-focused fund and the top 10 asset managers of ESG-focused funds.Public pension funds tend to lead ESG-focused funds in their support of ESG-linked resolutions.

Sources: Morningstar, FiveThirtyEight.com, and state agencies.

Among the top 10 asset managers, BlackRock, State Street, Vanguard, and Dimensional trail the overall average level of support for ESG funds as well as the average for public pensions. What’s more, BlackRock announced in May 2022 that it will vote for fewer climate shareholder resolutions in 2022 than it did in 2021.

Over the next few weeks, we’ll cover other major findings of this research, such as how plans voted on specific resolutions and more on how a state’s partisan leaning influenced how its pension funds voted. After combing through and analyzing over 1,900 individual votes, we’ll also share recommendations on how taxpayers, plan participants, and policymakers, among others, can help push the industry forward by pressing for greater transparency and more robust disclosure requirements into how public funds use their vast market size to influence company behavior and economic results.

Michael Blakeslee was a contributor to this article and a coauthor of the research. Janet Yang Rohr is an elected Illinois state representative and works on legislation related to topics addressed in this article.