Public pension plans need to consider the risks and drawbacks of environmental, social and governance investing

In Politics by Michael Rae

The goals of ethical investing are easier to annunciate than accomplish. While it is attractive to think that public investors can deploy their assets to optimize environmental, social and governance conditions, the tradeoffs and measurement problems can get in the way. Further, when public pension funds allow environmental, social and governance (ESG) concerns to eclipse their primary objectives of maximizing risk-adjusted investment returns, they let down public employees and taxpayers.

ESG portfolios can be constructed in a variety of ways. One method involves excluding securities issued by corporations that engage in objectionable activities from an asset manager’s choice of possible equity