In an email to Pensions & Investments, a Labor Department spokeswoman said the administration is concerned about inadequate investment disclosures and protections provided under Chinese law. Moreover, “national security concerns about certain Chinese companies increase the risk of sanctions, public protests, trade restrictions, boycotts, and other punitive measures that could jeopardize the companies’ business and profitability.”
The spokeswoman added: “These national security concerns carry particular weight in the unique context of a federal retirement plan that includes over a million uniformed military members.”
The administration’s citing of humanitarian concerns in the two letters, in particular, caught the attention of some in the ESG community.
“I would encourage the administration to think more holistically about ESG factors, not just related to China but related to climate, inequality, human rights, corporate governance,” said Heather Slavkin Corzo, Washington-based head of U.S. policy for the Principles for Responsible Investing.
“It’s good that they’re using ESG principles here but … I have no confidence that this going to carry over into any of the other activities,”
Bryan McGannon, Washington-based director of policy and programs at US SIF: The Forum for Sustainable and Responsible Investment, said that while there were ESG principles — such as humanitarian and corporate governance concerns — referenced in the administration’s letters, the motives were political.
“These political decisions are not about enhancing the value of the international fund and strengthening the value for the Thrift plan participants,” Mr. McGannon said. “ESG considerations, on the other hand, are looking at these criteria in order to make those long-term value decisions.”
George Michael Gerstein, co-chairman of the fiduciary governance group at Stradley Ronon Stevens & Young LLP in Washington, said public pressure on plan fiduciaries is not uncommon and it makes sense for board members to recalibrate their decision in light of the “apparent issues between the U.S. and China relationship right now.”
“If it’s being signaled that there are going to be issues in the foreseeable future, then … you can imagine that would make markets much more volatile; it may suppress equity values in China,” Mr. Gerstein said.
Samuel Halpern, principal at Prudent Expert LLC, a sole proprietorship that specializes in expert witness and advisory services in Luray, Va., wondered whether other “plan fiduciaries making investment decisions should consider humanitarian concerns like the ones those letters cited.” (See related Letter to the Editor, page 11.)
He also pointed to the Trump administration’s ramped up criticism of the Chinese government in recent months and whether its direction to the board conflicts with the Thrift board’s independence after its May 13 decision.
“My concern is whether the current instruction from the Trump administration and then the board’s decision complying with it is consistent with long-standing principles of fiduciary responsibility in investment decision-making,” he said.