Citing CalPERS Vote, Former SEC Commissioner Cautions Against ESG Disclosure Mandate

October 19, 2018

In a Wall Street Journal op-ed, former Republican SEC Commissioner Paul Atkins discusses how the sitting president of the California Public Employees' Retirement System (CalPERS) was defeated by a police union official who criticized the incumbent's focus on environmental, social, and governance (ESG) investments rather than financial performance, concluding "lawmakers and pension fund managers should take note."

CalPERS is underfunded, with assets sufficient to cover 71 percent of its obligations.  Jason Perez, the victorious police union official, hails from Corona, California, and his union had been sending representatives to speak at CalPERS Board meetings to discourage the focus on ESG issues and attention instead on investment performance.

Impact on cities:  Some California cities, including Corona, "have complained that rising pension costs are inhibiting their ability to fund other services," according to the Sacramento Bee.

Defeated President Priya Mathur had only been President since January, although she had been a CalPERS Board member for 15 years.  In his campaign about CalPERS' management, Perez argued that "[CalPERS has] been used more as a political action committee than a retirement fund."  Perez was one of six Board member representatives elected by employees and retirees participating in CalPERS.

"CalPERS has a fiduciary duty to California public employees, who rely on it for retirement security," Atkins notes in his op-ed.  However, "CalPERs's beneficiaries are stuck.  They are locked into the system and cannot vote with their feet."  He also notes that CalPERS was one of several pension funds who signed onto an October petition asking the SEC to standardize ESG disclosures for public companies.

Protect against information overload:  Atkins pushes hard against SEC mandated disclosure of ESG, noting that such "proposals always tout purported benefits to investors, but mandatory disclosure of additional immaterial information would be harmful."  Quoting former SEC Chair Mary Jo White, who cautioned against "information overload," he argues that "more information is not necessarily better information" and "mandating politicized corporate disclosures doesn't align with the SEC's mission to protect investors and facilitate capital formation."