Across the country, public pension fund trustees are invoking "long-term value" to justify environmental, social, and governance (ESG) investment mandates. But as expert witness Jay Rogers has observed in dozens of boardrooms, the conversation about financial performance often ends there. The beneficiaries—the public workers whose retirement security depends on these decisions—have no effective mechanism to hold anyone accountable when things go wrong.
This is not a partisan problem. It is a structural one. Fiduciary law governing public pension funds is explicit: California's Government Code requires CalPERS trustees to act "for the exclusive benefit of the members and beneficiaries of the system." Federal law under ERISA uses identical language: "exclusive purpose of providing benefits to participants and their beneficiaries." The key word is "exclusive"—not even "primary," and certainly not "subject to other social objectives the board finds compelling." The common law rule against using trust assets to benefit third parties at the expense of beneficiaries is a foundational principle of trust law, developed over centuries because beneficiaries typically cannot closely monitor trustees.
CalPERS, the nation's largest public pension fund, committed $468 million to a clean energy private equity fund in 2007. By March 2025, combined distributions and remaining value had declined to approximately $138 million—a loss greater than 71 percent. The S&P 500 returned well above 300 percent over the same period. The fund's managers collected at least $22 million in fees, but CalPERS declined public records requests for the management contracts, meaning the two million public employees whose retirement security depends on this fund cannot find out on what terms their money was managed.
CalPERS has since committed $5 billion to a custom climate-transition equity index and installed a Chief DEI Officer. Meanwhile, its 20-year annualized return of 6.7 percent trails its own 6.8 percent discount rate—the annual return assumption that determines how much the fund needs to cover future obligations. The fund's reported unfunded liability now stands at $178.6 billion.
The structural feature that insulates trustees from accountability is equally worth examining. In 2023, participants in the New York City Retirement System sued three municipal pension funds over a $4 billion fossil fuel divestment. The court dismissed the case in 2024 on grounds of standing. Defined-benefit participants, the reasoning went, cannot demonstrate concrete injury when taxpayers backstop their benefits regardless of investment returns. And the taxpayers who must cover any shortfall generally lack standing to challenge the investment decisions of a trust they do not control. The substantive question—whether politically motivated investment decisions breach the exclusive-benefit rule—was never reached on the merits.
The conservative legislative response in Texas and elsewhere has, in practice, compounded the problem. Texas's Senate Bill 13 mandated divestment from managers deemed to be boycotting fossil fuel producers. An assessment estimated it could cost more than $6 billion in lost returns over ten years. A federal court permanently enjoined the law in February 2026 for impermissibly targeting speakers based on their viewpoints. Courts have struck down similar measures in Missouri and Oklahoma, as reported in Oklahoma High Court Strikes Down Anti-ESG Pension Law as Unconstitutional. Replacing one form of politically mandated investment restriction with another is not fiduciary reform. Both parties have now demonstrated the capacity to use pension fund assets as instruments of policy. The beneficiaries are the ones paying for it.
Genuine reform is not ideological but procedural. Mandatory return attribution—requiring every public pension's annual report to include an independent analysis of what ESG mandates cost against a passive benchmark—would make the governance conversation concrete. Independent fiduciary review of any investment policy constraint with a material financial impact would create a backstop against captured governance that applies equally regardless of which party's agenda is embedded in the investment mandate. Proxy-voting transparency—requiring public funds to vote on their own proxies according to documented financial criteria—would close the most visible avenue through which advisory firms' political agendas are financed by retirees' assets.
The teachers, firefighters, and state workers whose retirement security depends on CalPERS did not vote to subordinate their pension returns to carbon accounting or progressive human resources infrastructure. They trusted the governance structure to serve their financial interest exclusively—the only interest the law authorizes the trustee to serve. What has failed is not the law but the governance architecture that should be enforcing it. Congress and state legislatures can require mandatory return attribution, independent fiduciary review, and proxy voting transparency without inserting new political mandates into the investment process. The political will to pursue structural accountability rather than political substitution is the only thing missing. The beneficiaries have been waiting long enough.
