This is the second of a two-part feature. The first, which focused on the US student debt crisis, is available here.
Moving on from the student debt crisis, Magaziner went on to explain that the filing of governance orientated shareholder proposals, such as the ones at Navient, was one of his “goals” when he was elected as Treasurer.
Under his leadership, Rhode Island adopted new proxy voting standards three years ago, which “included more of an SRI/ESG focus”.
“Historically” Magaziner said, “we tended to vote with management, we still do often, but I think now we have a greater sensitivity to ESG issues when we pass our proxy votes”.
Then two years ago Rhode Island took the step to start filing its own shareholder proposals.
Magaziner told RI: “Three years ago Rhode Island hadn’t done anything in the ESG space, we started by developing a proxy voting policies, we took the next step of starting to file and co-file proposals ourselves and directly engage.”
The “next step” for the state, Magaziner said, is for the state to become “more thoughtful about integrating ESG into our due diligence process, our manager due diligence process since most of what we do is outsourced”.
This planned integration of ESG will, Magaziner said, initially apply to its private equity and real estate investments rather than its public equity and fixed income space investments.
He said: “Historically, we have always been passive investors in public equity and fixed income, we don’t have much experience with active managers in that space…[and] my impression is that the passive ESG indexes have struggled to perform, so I don’t know what we are going to do there but the first step is to ensure we are incorporating ESG in to our manager due diligence, that is something that is achievable and something we very much intend to do”RI was told that Rhode Island is currently soliciting advice for its latest ESG drive but that it didn’t have a “formal relationship yet”. But Magaziner did say that the state is “starting to ask around who is out there and who might be helpful”.
Speaking about the up-take of ESG among other US states and municipalities, Magaziner told RI that despite some obvious leaders – CalSTRS, CalPERS and New York State – such considerations are still not on the “radar” of most.
“A lot of investors have ESG sensitivities and don’t even realise it”.
“I think we could use a more organised effort to educate and recruit more states and cities”, Magaziner said.
“A lot of it is down to education: a lot of my peers, treasurers and comptrollers around the country, they’ll say ‘we don’t believe in this ESG stuff’…but if you ask them, ‘well do you think we should have better corporate governance, separation of Board, Chair and CEO, executive remuneration that is tied to long-term performance, independent boards, should companies be thinking through the long-term implications of sea-level rise and climate change?’ they say ‘yes’ to most of that stuff.”
Magaziner concluded: “a lot of it does come down to education…[but] I think that there are a lot of investors out there that have ESG sensitivities and don’t even realise it”.
It seems that under Magaziner the smallest state in the Union is becoming one of the biggest advocates of responsible investing and with returns of eight percent other US states may start taking note of the Ocean State’s burgeoning ESG approach to investment.