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By Jon Coupal
Over the years, the California Public Employee Retirement System (CalPERS) has had its share of problems, including a few episodes of corruption. In 2016, its former CEO was sentenced to 54 months in prison for corruption and fraud charges stemming from a conspiracy to trade official acts for cash and benefits. In 2020, CalPERS’ Chief Investment Officer resigned over what was perceived to be an excessively “cozy” relationship with the Chinese Communist Party.
Speaking of the Chinese Communist Party, CalPERS took a massive $69 billion hit in market losses when the Covid virus caused a worldwide recession. Fortunately, those losses have since recovered and CalPERS earned a respectable 5.8% rate of return for the fiscal year ending June 30th.
California taxpayers are ultimately responsible for guaranteeing that the retirement benefit promises made to public employees are kept. Any policy change that potentially reduces the investment returns of state pension funds or the value of their holdings puts taxpayers at risk of even higher taxes. In short, all Californians have “skin in the game” in the financial health of CalPERS and the other major fund, the State Teachers Retirement System (CalSTRS).
Something to watch is the extent to which California’s retirement funds place the “principles” of ESG (Environmental, Social and Governance) above their responsibility to safely earn investment returns adequate to meet pension obligations.
ESG has no fixed or accepted definition. “ESG investing” is a term that is often used interchangeably with “sustainable investing,” “socially responsible investing,” or “mission-related investing.” According to Investopedia, “Environmental, social, and governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.” These standards may include a judgment of how a company’s policies address climate change, for example. Social criteria may refer to a company’s hiring and promotion policies, its relationships with certain suppliers and customers, and its interactions with communities where it operates. Governance standards are used to screen investments based on a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Some of this may sound innocuous at worst or even beneficial.
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