October 19, 2018
Next week in New York, the International Corporate Governance Network (ICGN) and the Council on Institutional Investors (CII) are holding conferences that will feature key players impacting issues of importance in corporate governance to Main Street investors. Unfortunately for Main Street investors, it appears they will have little to no representation at either of these events, despite hosting discussions centered on issues that directly impact the interests of such investors.
International Corporate Governance Network
On Monday, ICGN is hosting an event that centers around environmental, social, and governance investing (ESG) that will feature opening remarks from New York City Comptroller Scott M. Stringer and Securities and Exchange Commissioner Robert J. Jackson, Jr.
Both speakers are likely to use the opportunity to highlight the role of politically-driven investing decisions. The Main Street Investors Coalition, for instance, supports investors who purposely elect to use ESG investment strategies and the use of such strategies when they are directly tied to value creation. However, the Coalition opposes the pursuit of ESG over the maximization of value when institutions, such as the New York City pension funds, which are overseen by Stringer, pursue these strategies at the expense of those who depend on the fund for their retirement. As the American Council on Capital Formation pointed out in their report on the politicization of the New York City pension systems, “The prioritization politics over performance has had a deleterious impact on returns, and has contributed to the continued and increasingly severe decline in the overall funded status of the systems.”
After the opening remarks, the first session will discuss legislative proposals in Europe and the US in relation to how fiduciaries should treat ESG factors. Of note to Main Street investors, the panel will speak about the notice that the Department of Labor issued last spring, which warned funds not to emphasize political issues over profits. This correction from the Department was an important notice for pensions, the fiduciaries of trillions in retirement dollars across the country, are stewards of their members’ retirements, not policy makers.
Panels throughout the day will discuss how ESG is “under assault from business groups and Congress,” how “ESG is being integrated into actively managed portfolios as well as the use of ESG indexes in passively managed portfolios,” and how ESG affects performance. Main Street Coalition members have studied both topics and uncovered important issues that should be considered by event panelists, including a recently released American Council on Capital Formation study about ESG ratings that found them to be arbitrary and not reflective of a company’s risks related to ESG factors. The National Association of Manufacturers also released a study conducted by award winning economists which showed that environmental and social resolutions do not impact the performance of companies, but have the potential to add unnecessary costs.
Council on Institutional Investors
On Tuesday through Thursday of next week, CII will hold its Fall Conference that will touch on many of the same ESG issues covered at the ICGN event, with a focus on institutional investors.
A couple of things to know before this event:
CII recently teamed up with ISS to advocate for proxy advisors, making it unlikely that voices of Main Street Investors will be represented in many of the discussions.
Multiple panels and discussion focus on ESG investments and risk. Many of the panelists will likely advocate for ESG investment strategies. As we’ve stated previously, the Main Street Investors Coalition believes ESG strategies have a place in investing, but we believe these strategies should not be pursued on behalf of unknowing pensioners who entrust fund managers with their money in order to see their funds maximized.
Main Street investors should take note of these two events taking place next week in New York. Both events will feature vested interests who are intent on using their influence to push companies on issues not directly related to the financial performance of the companies. The various panel discussions and sessions should shed light on how these players intend to proceed in the upcoming year. Main Street Investors will ultimately pay the price if institutional investors make decisions that lower the performance of public companies.