Question A:
Regulation that allows state pension funds to consider environmental, social, and governance factors in investment decisions only if these factors are material for risk and expected return would make retirees measurably worse off.
Responses
Responses weighted by each expert's confidence
Question B:
Regulation that prevents state pension funds from considering environmental, social, and governance factors in investment decisions even if these factors are material for risk and expected return would make retirees measurably worse off.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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Under the assumption that "worse off" refers strictly to the financial well-being of retirees, then they cannot be made worse off by regulations that restrict pension funds to consider only risk- and return-relevant factors.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Is this worded right? Logically, using something only if it is material to risk and return has to make people better off. Is the restriction the "only?" Is this relative to full use of ESG? Is it relative to can't use ESG at all?
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 Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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Logically, investment return performance is not improved if the investor introduces new criteria like ESG performance: max_x u(x) > max_x u(x) subject to ESG(x). Adding ESG criteria has wider social benefits,. but to get those, it's best to regulate ESG directly.
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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For defined contribution plans, retirees make their own investment allocations and could be worse off by limiting their choice, unless other investments span these choices. If defined benefit, retirees are promised a payout, so the question applies to the payer choice instead.
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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it would not harm their financial outcomes much
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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If the objective is to maximize the future value of the pension, then managers should only take factors into account that impact risk and expected return. To me, it is easy to make the case that ESG impacts long-term expected returns & risk. Hence, the regulation is not binding
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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Investors might derive utility from these esg factors. So why limit this ex-ante.
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 Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Pension funds should focus on factors that maximize risk-adjusted returns.
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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must depend on whether the retirees want to invest in these funds and the legislation prevents them from being offered. the language in the media descriptions of the various proposed bills and what they do and do not permit is not always accurate.
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 Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Materiality can be have a heavy burden of proof. There is substantial evidence that governance affects risk and return, but regulation such as this may deter pension funds from incorporating it into investment decisions.
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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 Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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If retirees can choose among different funds, then allowing them to choose among funds which cater to their preferences would make them better off. If they cannot choose, or if taxpayers are the residual claimant, it likely makes sense to focus on maximizing return given risk.
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Focusing on returns is good because ESG ratings are a mess (but getting better), and pension funds/managers do not have the expertise to effect ESG goals with portfolio choices. Investors should vote for laws to regulate immoral or socially harmful firm behavior.
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 Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Pensions should already be doing this. Regulating this seems to enforce their fiduciary duty.
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 Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Unclear whether "being better off" is meant here as objective monetary calculations (returns) or individual preferences. If individual preferences are to be taken into account, any restriction could potentially reduce the welfare of individual investors with green preferences.
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Yes, perhaps, if "worse off" can include retirees' psychic disutility associated with ESG characteristics of the fund's holdings. Otherwise no.
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 Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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If the regulation affects defined contributions funds, it may make participants worse off if they don't have the ability to invest according to their values. That is, they may invest less toward their retirement.
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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It would, however, make retirees worse off who have a strong preference for holding environmentally friendly investments.
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Pensioners report in surveys to be willing to give up financial return in the support of sustainability goals. Depriving them of this choice lowers welfare.
-see background information here |
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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John Campbell |
Harvard | Bio/Vote History | ||
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The financial well-being of retirees depends on the ability of pension funds to consider all risk- and return-relevant factors in their investment decisions. (Although it is possible, indeed likely, that in the long run "green" assets will financially underperform "brown" ones.)
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Again, the logic puzzles me. Now you can use anything that is material for returns. If ESG really were demonstrably material, you'd be in trouble for not using it. Is anyone proposing banning ESG even if it is material? Sounds looney.
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Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Suppose asset number k has an extra high risk of extreme negative return outcomes because of some ESG factor. An investor is obviously worse off if forced by regulation to invest in asset k as though this were not the case.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Limiting access to assets relevant for risk and return, in addition to personal preference, constrains both utility and expected risk-adjusted payouts. A caveat is that realized returns do not equal expected returns, so whether retirees are actually worse off is still uncertain.
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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it's hard to gouge the magnitude of the financial impact but constraints that prevent considering risk and return factors will at some level hurt financially
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Prohibiting a manager from considering a factor that impacts risk and expected returns imposes a constraint that surely makes the pensioner worse off. This is a general point. Imagine running a bond portfolio where you are prohibited from considering interest rate risk.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
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same reasoning as before.
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Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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It would be detrimental to prevent the consideration of any factor that is material for risk and return.
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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Being forced to ignore factors that materially affect risk-return tradeoff males investors worse off. Not specific to esg, but for most factors.
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Such a regulation will cause law suits, lots and lots of costly measures to prevent law suits, missed investment opportunities, and lower returns.
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Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Hard to imagine that preventing consideration of "financially" relevant information is anything but bad.
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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In principle, yes. However, it is difficult to write such regulation and avoid abuse in the name of avoiding risk. I am afraid it is hard to figure out the net effect of this regulation
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Yes, if retirees bear some of the state's defined-benefit shortfall risk. If not, then still perhaps yes, if "worse off" includes ESG psychic disutility. Otherwise no.
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Investors have long considered material risk factors related to environmental risks, social risks and governance risks. Preventing the consideration of material financial risks is counter to fiduciary duty.
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Anything that prevents pension funds from considering material information makes the retirees worse off.
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Would be a grave mistake to not allow for the incorporation of, say climate risk (physical and transition risk) in portfolio allocation
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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