State and local government pension funds from across the U.S. continued to show significant support for environmental, social and governance-focused measures in the 2022 proxy season, according to a Morningstar review of some of the largest U.S. pension funds. 

Public pension funds demonstrated an 88% support rate for key ESG resolutions, considerably higher than general shareholders’ 56% rate of support. Public pension funds also supported key ESG resolutions more than sustainable funds, according to Morningstar’s research. 

Sustainable funds are those that use ESG criteria to evaluate investments or assess their societal impact and pursue sustainability-related themes. Morningstar also defines “key resolutions” as those that address environmental, social or governance topics and gain more than 40% support from independent shareholders. 

No public pension plans claimed that investing according to ESG principles was their primary goal, but at the same time, public pension funds’ support for ESG resolutions was nearly double that of BlackRock’s and Vanguard’s sustainable funds. Of the 10 largest asset managers by assets under management for U.S. sustainable funds, the key ESG resolution voting support rates of TIAA/Nuveen, BlackRock/iShares, Dimensional and Vanguard trailed those of typical sustainable funds and public pensions, according to Morningstar. 

Party politics also played a significant role in support for ESG resolutions. For example, pension funds based in states that Morningstar identified as Democrat-leaning showed a 97% rate of support for ESG resolutions, whereas funds based in more politically divided states had an 89% support rate (still ahead of that of sustainable funds).  

Republican-leaning states’ public pension funds’ rate of support was much lower, at 66%, as Republican politicians have tended to be the loudest in questioning the merits of sustainable investing. But this rate was still 10 percentage points greater than general shareholders’ support for ESG-related proxy proposals. 

The support of pension funds from Republican-leaning states or localities for environment-related proposals was particularly low, whereas their levels of support for social and governance-related matters were higher than that of general shareholders. 

“The differences in voting habits as well as the changes from year to year strongly suggest that the political spotlight on ESG investing has had some chilling effect on public pension funds’ support of ESG resolutions,” Janet Yang Rohr wrote in the Morningstar report. “There remains broader agreement among investment professionals on the merits of sustainable investing. This is borne out by the relatively high level of support for the key ESG resolutions.” 

Compared with the 2021 proxy season, 2022 saw an overall decline in support for ESG resolutions. BlackRock and Vanguard’s support of key resolutions, for example, dropped by more than 10 percentage points. These asset managers, as well as others, have recently emphasized their reluctance to support “unduly prescriptive resolutions or those that repeat existing requests,” according to Morningstar. 

An assessment of the 2023 proxy season from Institutional Shareholder Services Inc., a proxy advice firm that also owns PLANSPONSOR, found that environmental and social shareholder resolutions were approved at an all-time high. These topics mainly concentrated on diversity, equity and inclusion and climate change.  

However, this year’s proxy season also witnessed a drop in average shareholder support levels for environmental and social resolutions, as well as a low number of majority-supported resolutions. In addition, ISS reported an uptick in “anti-ESG” proposals. 

Shareholder resolutions most often are nonbinding and often are voted on from April to June.