[UPDATE: My colleague Prof. Stephen Bainbridge, who is a corporate law scholar, has more on the subject here; much worth reading.]
From opinion 22-05 by the Kentucky Attorney General's office, handed down a week ago:
Syllabus: "Stakeholder capitalism" and "environmental, social, and governance" investment practices, which introduce mixed motivations to investment decisions, are inconsistent with Kentucky law governing fiduciary duties owed by investment management firms to Kentucky's public pension plans….
There is an increasing trend among some investment management firms to use money in public and state employee pension plans—that is, other people's money—to push their own political agendas and force social change. State Treasurer Allison Ball asks whether those asset management practices are consistent with Kentucky law. For the reasons below, it is the opinion of this Office that they are not….
For years, … the Commonwealth's public pension plans have hovered at severely underfunded levels. According to the Kentucky Public Pension Authority's most recent annual report, the public pension plan for most state employees is roughly 17% funded…. And while the public pension plans administered by the Kentucky Public Pension Authority have shown year-over-year improvement in funding, there is a concern that this trajectory may be threatened by extreme approaches to investment management—particularly those that put ancillary interests before investment returns for the benefit of public pensioners and state employees.
One such approach is "stakeholder capitalism." According to its advocates, "[s]takeholder capitalism is an expansion of corporate management fealty beyond shareholders to include the workforce, supply chain, customers, communities, societies, and the environment." What this means in reality is that investment management firms who embrace stakeholder capitalism propose prioritizing activist goals over the interests of their public and state employee clients.
