Oregon pension crisis deepens as court rules against ESG investing in public funds

The House Committee on Emergency Management, General Government, and Veterans convened on January 28, 2025, to discuss critical issues surrounding public pension investments in Oregon. A significant focus of the meeting was the potential conflict between environmental goals and fiduciary responsibilities, particularly in relation to House Bill 22100.

The discussion highlighted the inherent contradiction in pursuing carbon neutrality by 2050 while simultaneously prioritizing the financial interests of pension funds. One speaker likened this to ordering a triple bacon cheeseburger while claiming to be on a diet, emphasizing the impracticality of balancing these opposing objectives. The speaker referenced a legal precedent involving American Airlines, where the airline faced a lawsuit from pensioners after investing retiree funds to meet climate and social goals. A federal judge ruled that this approach violated the fiduciary duty of loyalty, underscoring the legal risks associated with prioritizing non-financial goals over financial performance.

Investment performance data was also presented, indicating that environmental, social, and governance (ESG) investing, as proposed in House Bill 22100, tends to underperform compared to traditional investment strategies focused solely on fiduciary standards. Research from the Harvard Business Review and the European Corporate Governance Institute was cited, showing that ESG funds generally yield lower returns and carry higher risks.

The speaker stressed that Oregon law mandates public pensions to be invested solely in the fiduciary interest of the fund, a standard that taxpayers and pensioners expect. With the Oregon Public Employee Retirement System (PERS) operating as a defined benefit plan, taxpayers bear the risk of any investment shortfalls. The unfunded liability of PERS has escalated dramatically, from $12 billion in 2014 to $24 billion by the end of 2023, with total liabilities reaching $106 billion. The speaker warned that diverting investment priorities away from fiduciary interests, as suggested in the bill, would exacerbate this financial crisis.

In conclusion, the meeting underscored the tension between ambitious environmental goals and the legal and financial obligations of public pension funds. The committee's discussions reflected a need for careful consideration of the implications of House Bill 22100 on Oregon's pension system and its taxpayers.