So, What Exactly is ESG and Why is it in the News Right Now?

BY HON BRAD LANDER

Last week, a narrow majority in Congress voted to block a Labor Department rule allowing retirement plan managers to include environmental, social and corporate governance considerations, or “ESG,” in their investment plans.

So, what exactly is ESG and why is it in the news right now?

The New York City Retirement Systems brought shareholder resolutions at a couple of pharmaceutical companies last year because we didn't think they had strong enough rules against insider trading. You could call that the “G” in ESG investing: an investor concerned about a governance issue that poses risks for the company’s long-term value.

For us at the Comptroller’s office, ESG investing means looking at the environmental, social, and governance risks facing companies and integrating risk mitigation into how we build our portfolio and engage with the companies we invest in – all in order to deliver stronger long-term, riskadjusted returns for public sector workers.

Yet in the past year, “ESG” has become a boogeyman for pundits and politicians looking to preserve short term profits for fossil fuel companies at the expense of both pensioners and our planet.

In some ways, this is primarily about short-term versus long-term investing. For the firefighters, cops, and teachers in their 30s working today, we have to make sure their pension fund will be there 50 years from now to keep paying them pension checks. We aren’t day traders trying to make a quick buck; we have a fiduciary responsibility to maximize stable risk-adjusted returns for the long-term.

As an institutional investor charged with securing returns for pensioners today and decades to come, we keep a close eye on risks facing companies and encourage them to address issues that could impact long-term value.

Take the “S” in ESG. It stands for “social,” but this week it could just as well stand for “Starbucks.” The company’s aggressive anti-union behavior has been all over the news, with a federal judge ordering the company to pay millions to workers for violating their labor rights this week. That’s a reputational – or a “social” –risk to the coffee chain’s brand, one that institutional investors should be concerned about. We filed a shareholder resolution requesting that the company conduct a third-party workers rights assessment to address concerns they are violating not only the law but also their own policies when it comes to workers rights.

Our fiduciary responsibility to the 750,000 public sector workers and retirees requires taking a broad look at the risks facing our investments, and working to address them. From governance issues like guard rails against insider trading, social issues like preserving a company’s reputation as a friendly employer, to environmental issues like addressing the growing threat of damage to essential infrastructure from climate change-intensified storms, investors can and should be concerned about risks facing the companies they invest in. You could call that “ESG,” or you could simply call it responsible investing. p

New York City Comptroller Brad Lander was elected to serve as our city’s budget watchdog and chief accountability officer on November 2nd, 2021. In the City Council, Lander spearheaded efforts to protect workers and build a more equitable economy, working closely with labor advocates to win groundbreaking laws to end unfair firings and establish a fair work week for fast food workers, protect freelancers from wage theft, ban discriminatory credit checks for employment, and guarantee a living wage for app-based drivers and delivery workers.

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