How ‘woke’ a public pension plan portfolio is depends on which state it’s located in

As executives and trustees of public pension plans navigate the balance between political demands and fiduciary duties, they are encountering legislators and governors to the right and the left telling them what they must do or cannot do, but without offering much guidance on how to do it while still setting deadlines for action.

Often depending on the political color of the state, public pension executives face politicians complaining about moving too fast on establishing “woke” investment strategies, or moving too slowly on divesting assets deemed environmentally, financially or politically unsound.

“In my view, these orders are placing pension plan fiduciaries between a rock and a very hard place,” Olivia S. Mitchell, professor of insurance and risk management at the Wharton School of the University of Pennsylvania, Philadelphia, said in an email.

“Many government pension plan fiduciaries are appointees of the governor or serve ex officio, making this tension especially problematic,” said Ms. Mitchell, who also is executive director of the Pension Research Council at Wharton and professor of business economics and public policy.

The squeeze on fiduciaries has been tightened due to multiple efforts in states — some enacted, some not — to prevent or discourage public pension plans from using environmental, social or governance factors in their investing strategies.

The most dramatic example is the Florida State Board of Administration, Tallahassee, which runs the $180 billion Florida Retirement System. The board’s three elected trustees — governor, attorney general and chief financial officer — voted Aug. 23 that the staff should only consider “pecuniary factors” in their investing considerations, which means they should avoid “social, political or ideological interests” in their investing efforts.

The trustees said fiduciaries — board staff, asset managers and investment advisers — “must comply with the highest standard of loyalty and integrity to the fund and its beneficiaries.” The trustees ordered a report on this strategy to be filed by Dec. 15, 2023.

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