After 1819 News reported on a "spotlight bias" study from the 1792 Exchange that gave the Retirement Systems of Alabama's (RSA) investment managers one of the highest "Pro-ESG" averages in the country, a spokesperson from RSA responded to refute the nonprofit's claim.
The 1792 Exchange report analyzed proxy voting records of pension funds and their investment managers. Only 19 states, not including Alabama, disclosed their proxy voting records for directly owned entities. For the 31 remaining states, the nonprofit looked to data from their investment managers.
It then categorized resolutions into "Pro-ESG" and "Anti-ESG," the latter being only a few dozen votes compared to hundreds of the former. Because of this, the 1792 Exchange said "Anti-ESG" averages are more volatile.
ESG, or "environmental, social, governance," is a set of investment criteria beyond profitability that has come under scrutiny from conservatives, who allege it is ideologically driven and a way for influential individuals and organizations to enforce policies that are infeasible for Congress to make into law.
Last spring, the Alabama Legislature passed what some Republicans called the strongest legislation battling controversial ESG investing in the country. 1819 News went into detail about how the law works earlier this month.
The 1792 Exchange report gave the RSA a 49.5% "Pro-ESG" average, alleging the RSA's investment managers supported what the nonprofit considered resolutions favorable to ESG causes nearly 50% of the time.
The only states with a higher "Pro-ESG" average were Tennessee (56.6%) and Wisconsin (59.6%).
1819 News reached out to RSA CEO David Bronner via email multiple days before releasing the report. We asked him if he thought the report was misleading and, if so, how. We also asked him if he had an opinion on using ESG in investing.
But Bronner did not respond.
Only after the report was released, a spokesperson with the RSA reached out to 1819 News through Facebook messenger, suggesting the report relied on faulty assumptions.
"The 1819 News article wrongly claims that RSA is pro-ESG based upon the proxy voting record of RSA's bank State Street," the spokesperson said. "Because State Street does not invest RSA's assets and does not cast proxy votes on RSA's behalf, the 1819 article's reliance on State Street's proxy voting record is misplaced, and the article is simply wrong."
1819 News shared the claim with 1792 Exchange Director of Corporate Research Banner Brock. Brock responded with a list of questions for the public pension:
"Which investment manager is managing assets/equities for pension funds, including TRS/ERS, if not State Street?"
"Is this asset manager voting the proxies as well? Does RSA vote any of its own proxies or at least have the power to inform specific votes for its asset manager? If so, would RSA publish this information in the future for the good of constituents and plan members?"
"As 1819 noted, the state legislature took an important first step with its anti-economic boycott bill passed in the spring. Will RSA consider this legislation when vetting its vendors?"
Brock also shared his contact information and offered the RSA the opportunity to contact him directly to clear up any misunderstandings and ensure his organization's research is accurate.
1819 News sent Brock's questions and contact information to RSA Deputy Director for Administration Jo Moore, who issued the following response:
"The 1792 Exchange study wrongly claims that RSA is pro-ESG based upon the proxy voting record of RSA's custodial bank State Street. The study references State Street's voting record and claims that it is RSA's asset manager. However, State Street does not invest RSA's assets and does not cast proxy votes on RSA's behalf. State Street simply acts as RSA's custodial bank by clearing trades, acting as the holder of record of RSA's assets, calculating investment returns, etc. Thus, the study's reliance on State Street's proxy voting record is misplaced and simply wrong."
"RSA does not use any outside investment managers who proxy vote on our behalf. RSA does utilize a third-party advisory firm, Glass Lewis, for proxy voting. This advisory firm voted with management on 92% of the votes last year, including management in fossil fuel companies. RSA would need to hire additional staff if we were to spend time and resources for each and every proxy issue, much like California. RSA does not have a controlling interest in any listed companies, therefore proxy voting does not have a significant impact on performance."
After reviewing the RSA's response, Brock issued a final statement:
"We appreciate RSA clarifying that it is using Glass Lewis as a proxy advisor and that State Street is not casting proxy votes on behalf of the retirement system. All state pension boards, like the RSA, owe transparency to the pension beneficiaries and taxpayers by disclosing any and all third-party entities involved in proxy voting or investment management. RSA has a fiduciary duty to contract with vendors focused on the sole interest of increased returns for beneficiaries; vendors that incorporate ESG priorities may violate that duty. Therefore, 1792 Exchange encourages RSA to make its proxy voting records available, as states like Florida and Ohio have done, and we would gladly update our report to reflect this data."
"Disclosing the involvement of Glass Lewis is a basic first step, but this raises additional questions given that Glass Lewis has in the past and may still be supporting ESG proposals and priorities. In fact, a letter from 21 state Attorneys General, including the AG of Alabama, to ISS and Glass Lewis in January 2023 claimed that the firms' 'climate and diversity, equity, and inclusion priorities' may 'violate their legal and contractual duties' to the state. In the 2022 proxy season, Glass Lewis recommended votes based on racial disclosures and the number of gender diverse directors. The letter also states that Glass Lewis' pledged to recommend votes on company directors and proposals based on whether a company is implementing 'net zero emissions' goals and related climate commitments…' Additionally, if, as RSA is claiming, Glass Lewis voted against management on 8% of proposals last year, this entails potentially supporting hundreds of ESG-related proposals, which is concerning given the egregious nature of some of these shareholder resolutions coercing corporate behavior. To see how RSA funds were truly voted, public disclosure is necessary and important."
"1792 Exchange is eager to update its report when RSA publishes its 2022 proxy voting records. In the future, we encourage RSA to take action to avoid supporting controversial resolutions or create and monitor a custom policy with Glass Lewis to avoid promoting divisive ESG- and DEI-related priorities. We encourage the state legislature to pass laws, as other states have done, to require pension boards, staff, and contractors to focus on fiduciary duty and prevent asset managers and proxy advisors from weaponizing the funds for political purposes."
Brock told 1819 News that no one from the RSA contacted him personally.
To connect with the author of this story or to comment, email will.blakely@1819news.com or find him on Twitter and Facebook.
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