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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowThe state’s public retirement oversight committee plans to remove BlackRock Inc. from its investment portfolio after a state review found the firm has participated in environmental, social, and governance, or ESG, practices.
The board of the Indiana Public Retirement System, or INPRS, unanimously voted Friday afternoon to take the final step of replacing Black Rock as the provider of global inflation-linked bonds to the system.
BlackRock, the world’s largest asset manager and a leading provider of investment, advisory and risk-management services, was the first company that the state Treasurer’s Office placed on a watchlist for potential violations of a recent state law.
Indiana passed a law in 2023 directing the INPRS board to refrain from making investments with the purpose of “influencing any social or environmental policy or attempting to influence the governance of any corporation for nonfinancial purposes.”
The law defines an ESG commitment as a decision to make asset choices that take into account nonfinancial factors “to further social, political, or ideological interests based on evidence indicating the purpose.” Private equity funds, which make up about 15% of the state’s total pension investments, are excluded.
State officials are actively vetting the INPRS’s portfolio of about 10 to 15 asset managers to weed out those practicing ESG investing.
“While this law isn’t perfect and there is work to be done to ensure that all pension decisions are made using non-ESG factors, today’s decision is a good first step,” Treasurer Daniel Elliott said in written remarks.
Elliott’s office produced a report in June that lists several BlackRock actions that it considers in violation of state law. It included a company disclosure noting ESG engagement, the use of third parties for ESG data and its membership in a net-zero emissions consortium.
If a company is removed, the law asks that a comparable, anti-ESG replacement fills the gap of the company. State Comptroller Elise Nieshalla said a comparable asset manager does exist to replace BlackRock.
“I commend State Treasurer Daniel Elliott for his thorough research regarding BlackRock’s involvement in broad reaching priorities that are non-fiduciary and focused on social and environmental policy initiatives,” Nieshalla said in written comments. “State retirees and employees deserve to benefit from investment managers who focus solely on fiduciary duty.”
The state retirement board must select a replacement company within 180 days.
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What a mistake. I hope legislators are also turning down investment returns for political considerations in their retirement funds.
They are.
A wildly misguided law forces this move. Legislators chose support for polluters, mismanagement, abuse of employees, and corporate malfeasance in a knee-jerk reaction. Polluting, managing badly, treating workers badly, and illegality are not fiduciary standards. Rather, they are things that a well-run and profitable company serving shareholders’ best interests should avoid.
Your post is nonsense. BlackRock’s ESG strategy defines almost all heavy industry as “dirty” and then avoids investing in those industries, rather than prioritizing the pensioners’ returns. The secondary effects are then jobs being moved overseas and less capital investment by heavy industry in cleaner tech because the funding becomes more expensive to raise. This has been substantiated by independent academic studies.
That’s absolutely asinine and unconstitutional.
If, Big If Black Rocks funds perform better, Higher Returns, than the non-ESG providers this is ludicrous. So, show us the numbers so we will know.
DonALD has it right. The trustees have a fiduciary duty to invest in the wisest portfolio of investments and that should be evaluated strictly on investment returns. This law is political grandstanding, which is obviously appealing to many IBJ readers.
If this was $100,000, then it’s just political theater. If it’s $100,000,000, then it’s stupidity. Maybe IBJ could do more than reprint the press release and give us some more details on what the financial hit might be?
The law if working as intended. BlackRock is prioritizing ESG over returns, which isn’t in the interest of the pensioners nor the state’s manufacturing economy.
You’re doing a compelling case of proving why the law wasn’t needed. If BlackRock wasn’t producing the highest returns, we’d have dumped them. Now, we are saying we will pass on higher returns … if they’re in the “wrong” funds.
As said, all this law is … is a favor to the coal industries.
It’s foolish to attempt to judge the future performance of any ESG fund based solely on historical returns because these funds are heavily tilted away from heavy industry and manufacturing, which haven’t performed well recently relative to new tech but can be expected to make a comeback with the business cycle. Moreover, why would the state of Indiana invest in funds that intentionally divert capital away from the industries that comprise the backbone of the state’s economy?!
“Why would the state divest away from the buggy whip industry and invest in the automobile?”
The law was simple – invest in what gets the best returns. Introducing subjective criteria is a mistake. If coal is a great investment, someone will start a fund and make lots of money…. and if it has the best returns, Indiana should put their money in it.
The law does not introduce any subjective criteria. What it does is exclude funds that introduce subjective ESG criteria.
Which is based on the subjective opinion of the treasurer. Who, oh by the way, is hiring new managers who are banned in other states.
From Niki Kelly’s reporting on the topic:
“Next, the board will decide who to hire instead. The contenders are State Street, UBS and Northern Trust.
All three are on other states’ ESG boycott lists – Northern Trust in West Virginia, UBS in Texas and State Street in Oklahoma. All of the alternatives also are members of the Net Zero Asset Managers Initiative, which commits to net zero emissions.“
So why are we going through this exercise, to switch from one ESG fund to another?
https://indianacapitalchronicle.com/2024/12/16/pension-board-votes-to-remove-blackrock-due-to-esg-violations/
Larry Fink at Blackrock is a huckster. For years, he pushed ESG. Then, magically, his Investment Firm opened an ESG fund.
The performance of that fund lagged others, so now Fink has “pivoted” (sounds better than leaving the investors holding the bag) away from ESG.
At the beginning, middle, and end of the day, the test is simple: are the fund manager’s positions resulting in higher or lower returns to the beneficiaries. A fund tilted towards heavy industrial pollution generating, petroleum producing, racially or national origin discriminatory, pro-Israeli businesses is as much an ESG fund as any. It seeks to promote a particular outcome other than return on invested assets. The sword cuts both ways…
Just let me know who is providing the best returns. If Blackrock is providing the superior terms, then use Blackrock. If not, use someone else. But don’t fire a firm because some part of the firm is engaged in political posturing that doesn’t align with your own…
First off, asking what funds have provided the best returns involves looking at historical performance, which evidence proves is a very poor way of forecasting future returns. Second, the sword does not “cut both ways” because it is the ESG funds that limit their choices, when building portfolios, to only those stocks that rank high on ESG metrics. The non-ESG funds, that the law allows for, do not preclude stocks that rank high on ESG metrics. So, the manager of a non-ESG fund is able to select any stock a ESG manager is restricted to plus more.
Steven, if you’re going to just keep repeating “ignore past performance”, you need to explain what the replacement criteria is.
The performance of investment strategies, or “styles”, cycle through time as a result of the business cycle, interest rates, expectations for future technological advancements, etc. ESG funds have performed slightly better than the overall market because they tend to be more heavily weighted toward tech and growth stocks, which have performed well recently. But once the market cycles towards value and small cap, ESG funds will likely under perform along with tech and growth. Some pension fund money managers may try to anticipate turns in these market cycles, but that’s very hard to do successfully; hence, most just try to maintain a diversified balance of styles in their portfolio and selective fund managers based on a variety of factors. But one doesn’t need ESG funds to achieve that balance because ESG funds exclude options, like heavy industrials and energy, that should be part of a diversified balanced portfolio.
So if that’s all true, why is Indiana looking at three companies who will also make the same mistake, that are also on ESG blacklists in other states because they’re committed to net zero emissions in their funds.
What are we gaining? Other than giving some elected officials a meaningless bullet point for their re-election materials because 99% of the public won’t realize what is really happening?
It cuts both ways because fund managers are not allowed to invest in companies that have meaningful ESG programs (if any are left) because that would violate the ESG restrictions. If they do, they are labelled an ESG fund or ESG manager, and booted.
It’s not just saying you have an ESG fund, its participating in funds that include significant components of companies with strong ESG records. You know, the companies that at least say we’ll try to not poison the earth, we’ll try to be socially conscious, and we’ll try to not let our executives and board loot the company and abuse the staff…
And correct, past performance is not a great indicator of future performance, but it’s the only one we have. If I have your track record over a few cycles, then I know how your fund responds to changing investment environments. Has your fund successfully navigated changes over the past 5 to 10 years? Or can you just show stellar results in the past year, when Alpha was often less important than the beta of being in the market.
ESG doesn’t necessarily exclude energy; they tend to exclude oil and coal. They tend to include solar and other alternatives, perhaps even natural gas.
Incorrect, the mangers of the state of Indiana’s pension funds are allowed to invest in the stock of firms that have meaningful ESG programs. What they aren’t allowed to do is invest in funds that prioritize ESG over returns. Plus, we don’t have a track record over multiple cycles for ESG funds. And in what world would an ESG-restricted manager be expected to outperform a non-ESG manager when the latter can select anything the former selects plus more?
In what world would you switch from the largest fund provider guilty of prioritizing ESG to one of three smaller funds also found guilty of prioritizing ESG?
Indiana.
It just doesn’t make sense. Unless it’s just posturing.
So, you’re okay with the law … you just want it enforced against ESG providers more consistently?
I’ve clearly established that not only do I think the law is stupid (all we should care about is the highest returns), I don’t see the point if all we are doing is switching from one ESG company to another ESG company based on the subjective opinions of the treasurer of Indiana.
Put another way, if we can’t find a non-ESG company (and we apparently can’t), why get out of Blackrock if they’re giving us the highest returns … when the law already has an escape clause that says we can stay with ESG companies if we can’t find a non-ESG alternative that performs as well?
I think you’ve already managed agree with me, that the law isn’t needed because non-ESG funds wouldn’t get the highest returns because they’re not invested in what you feel is the proper mix of industries. But, you also apparently think the law is needed because … you don’t have faith in the numbers working your way, so we need to just ignore past performance for “gut feel”. Which, in this case, happens to align with the interests of some industries that give our legislators a lot of campaign contributions.
>> “ the law isn’t needed because ESG funds wouldn’t get the highest returns” << is what I meant to say.