By Ross Kerber
(Reuters) – Florida’s governor wants pension plans in conservative U.S. states to band together to fight shareholder initiatives on issues like climate change and diversity, but the idea may prove difficult to come by. to carry out.
Ron DeSantis’ call last month opened a new front in Republican efforts to roll back activist-led environmental, social and governance, or ESG, initiatives at corporate shareholder meetings.[L1N2Z927V]
With assets of more than $5.7 trillion under management, US state and local defined benefit pension plans are a powerful shareholder force that can help activists make or break ESG issues on the ballot corporations declaring how they will vote and giving impetus to reform efforts, or slowing them down.
But getting them to vote together as a bloc, as DeSantis wants, will be tricky, given that Republican-controlled state retirement systems have voted differently on the same issue and have oversight structures that complicate efforts to influence their vote. . Public funds are rarely the biggest investors in US companies, limiting their influence.
“It’s a shrewd political move to appeal to people who don’t like woke capitalism, but are they going to develop this huge voting bloc? No,” said Con Hitchcock, a Washington, DC, attorney who advises the trust funds. pensions.
DeSantis, a Republican who has been courting conservatives as part of an expected 2024 presidential bid, suggested making the pension system in his home state of Florida work alongside those in other Republican-controlled states like Texas.
“What we need to do is get other like-minded states to have all the voting rights of our retirement systems used as a bloc,” DeSantis said at a July 27 news conference.
“We could be a real check against a lot of the excesses that we’ve seen and we probably have enough resources to push back a lot of these things.”
His office has said it plans to introduce legislation to counter ESG factors in investing. But he hasn’t offered details on how that might affect proxy voting, the process by which investors vote on issues such as director elections, executive compensation and shareholder proposals at annual meetings.
DeSantis’ idea could make sense in theory, based on previous voting patterns. Florida’s pension investment manager, the State Board of Administration (SBA) and the Texas Teachers Retirement System, two of the largest pension funds in Republican-controlled states with some $440 billion in combined assets , were less likely to support ESG shareholder resolutions compared to funds in some Democratic-led states, according to Insightia, a corporate governance research arm of software company Diligent.
(Graph: Public Pension Support for ESG Proposal Sheets: https://graphics.reuters.com/INVESTING-ESG/FLORIDA-POLITICS/zgpomxoxepd/chart.png)
But the two systems still supported the most ESG resolutions this year, Insightia data shows.
While most shareholder ESG proposals are non-binding, some have drawn a lot of attention at corporate annual meetings.
For example, Florida and Texas pension funds sided with ESG activists by urging Costco Wholesale Corp to set emissions reduction targets and asking McDonald’s Corp to review its impact on issues like racial inequality, according to show the disclosures.
In other cases, the two pension fund systems voted differently on the same resolution. For example, the SBA supported and Texas opposed a resolution that required Nextera Energy Inc to publish the gender, race, or ethnicity of directors. [L2N2XB1AO]
The SBA supported management only 42% of the time on “say about pay” issues related to executive compensation, compared to 87% for the Texas system.
Such disparities show that funding would need major changes to make DeSantis’ idea work, said Richard Fields, corporate governance consultant at Russell Reynolds Associates.
“A ‘red state’ voting bloc wouldn’t be much different unless every state, including Florida, made big changes in how they approach the use of proxy voting responsibilities,” Fields said, referring to the states. Republican leaning.
“This would be a big change.”
The way pension funds are administered is another obstacle.
DeSantis himself is one of three trustees who oversee the SBA, but other governors in Republican-controlled states have less direct influence on their pension systems.
Texas Governor Greg Abbott, for example, directly appoints only three of the nine administrators in the Texas teacher system.
It’s a problem blue states acknowledge and Democrats are also considering coordinating pension fund efforts in recent weeks.
“Part of the challenge is that pension funds are run a little bit differently in different places,” New York City Comptroller Brad Lander, a Democrat who oversees retirement money, said at an event for investors. this month.
In a high-profile ESG vote at Exxon Mobil Corp. last year, Florida and Texas pension funds voted for changes that DeSantis later called “ridiculous.”
In that vote, activist investor Engine No. 1 won three seats on the oil and gas company’s board of directors after fielding candidates, including a former oil refining executive, on a platform to improve financial performance and focus more on clean energy. The measure won early backing from public funds in New York and California.
“They elected people to the Exxon board who were opposed to oil,” DeSantis said last month, mocking the election.
Records show the SBA voted for all four breakaway hedge fund nominees, while the Texas teachers’ system supported three. A spokesman for the Texas system declined to comment.
The SBA has said the votes reflected factors such as Exxon’s poor performance and a lack of board members with energy industry experience. The votes were intended to generate “returns for our plan participants,” an SBA spokeswoman said.
(Deepa Babington edit)