But less visibly.
For all the obituaries written about ESG in the past year, reports of its demise have been greatly exaggerated. At its core, ESG represents a fundamental attempt to redirect business and finance toward social transformation, channeling private capital to advance specific political objectives.
While the ESG label may face growing skepticism, the underlying mission — transforming boardrooms into vehicles for advancing a progressive agenda — remains deeply embedded in America’s institutional power centers. It’s simply evolving into more resilient forms.
The costs of this corporate politicization are substantial but often deliberately obscured. Social engineering initiatives, such as rigid diversity mandates, divert companies’ focus away from their business and, by extension, their primary duty, which is to deliver shareholder return.
It’s an economic truism: Organizations that subordinate customer value to ideological activism ultimately deliver inferior performance. The institutions driving this mission drift, particularly public pension funds managing trillions in retirement assets, deserve heightened scrutiny.
Logic would suggest that pension systems aggressively championing ESG, such as California’s CalPERS or New York’s NYSLRS, would show measurably weaker financial results compared with more traditionally managed funds. Our new, comprehensive study, “Beyond the Bottom Line,” reveals a more nuanced and disturbing reality.
Despite their vocal advocacy and sponsorship of hundreds of ESG resolutions, these influential pension giants haven’t fully implemented the divestment strategies they publicly champion. CalPERS and NYSLRS continue to hold substantial positions in fossil fuel companies. Even after commitments to divest from firearms following the Sandy Hook tragedy, California’s pension systems remain invested in major gun retailers. The loudly advertised purge hasn’t occurred, but something more insidious has taken its place.
Rather than divesting from politically disfavored industries — a strategy with obvious financial consequences — these pension behemoths have pivoted to sophisticated shareholder activism. They cast tens of thousands of proxy votes annually, support ESG resolutions with near-mechanical consistency, and leverage their immense capital to pressure financial institutions into imposing climate and social mandates throughout their portfolios. This strategy weaponizes public pension capital to reshape corporate behavior toward objectives increasingly detached from financial performance.
The economic effect of this approach is deliberately difficult to trace. When a pension divests, the financial consequences appear directly on its own balance sheet. But when pensions engage in shareholder activism — such as compelling Apple to conduct costly racial equity audits or pressuring energy companies to abandon profitable exploration projects — the resulting costs are effectively socialized across all investors. The connection between ESG activism and diminished returns in your retirement account remains invisible, though the cumulative impact is substantial.
Our research found that the most ESG-active public pension systems showed slightly lower average returns over a decade (7.93 percent versus 8.10 percent) — a modest difference that masks the true dynamic at work. By avoiding outright divestment while aggressively pursuing engagement strategies, funds like CalPERS have engineered a mechanism to reshape corporate America without shouldering the full financial consequences. The costs are diffused across the broader market.
This strategic evolution should deeply concern those who expect public retirement investments to prioritize financial security over political transformation. Major public pension funds are quietly repurposing themselves from stewards of workers’ retirement security into powerful vehicles for systemic change, leveraging billions in assets to advance agendas never endorsed by their beneficiaries.
Public pension systems were never designed as instruments for social engineering. They exist chiefly to secure the financial futures of public employees. When that mission blurs, everyone loses — except those advancing their agendas with other people’s money.
Allen Mendenhall is associate dean and Grady Rosier Professor in the Sorrell College of Business at Troy University, where he directs the Manuel H. Johnson Center for Political Economy. Daniel Sutter is the Charles G. Koch Professor in Economics at Troy University and director of Academic Programs at the Manuel H. Johnson Center for Political Economy.