Recently, FedSmith published an article outlining the investment philosophy of BlackRock, the company that invests a large percentage of the retirement funds in the Thrift Investment Plan (TSP).
Some commenters appeared to be commenting on ESG mutual funds, rather than the overall investment philosophy of BlackRock. The FedSmith article focused on BlackRock’s overall investment strategy that may impact TSP investors. The mutual fund window (MFW) of the TSP—on the other hand—allows TSP participants to invest in any of thousands of mutual funds with investments meeting the investment preferences of that investor—including ESG funds.
The federal government’s Thrift Savings Plan (TSP) is the largest retirement plan, with almost $800 billion in assets. Policies and investment strategies used by the TSP and its investment advisors to invest this money influence investment decisions for the more than six million TSP investors and other retirement plans as well.
TSP investors are primarily investing in index funds. BlackRock and State Street invest TSP assets in the F, C, S and I Funds.
Bill To Ban Leveraging TSP Accounts To Push ESG Policies
After the FedSmith article was originally published, Senator Ted Cruz (R-TX) introduced a bill on the topic. This bill (S. 1891) would prevent companies “managing investment funds held in federal employee retirement accounts from using those holdings to vote in corporate shareholder meetings to force leftist Environmental, Social, Governance (ESG) and Diversity, Equity, and Inclusion (DEI) policies onto private sector businesses.”
In a press release, Senator Cruz wrote: “As the managing entity of TSP, BlackRock is leveraging the financial weight of the federal retirement system to push their woke ESG and DEI ideology through other peoples’ investments. BlackRock’s manipulation and brazen politicization of federal retirement accounts is wrong and should not be tolerated.”
The BlackRock actions the Senator is referring to are reflected in a 2017 New York Times interview. In that interview, BlackRock’s CEO, Larry Fink stated, “Behaviors are gonna have to change and this is one thing we’re asking companies. You have to force behaviors, and at BlackRock we are forcing behaviors.”
Congressman Ken Buck (R-CO) previously introduced companion legislation in the House (H.R. 3406). He wrote in the same press release released by Senator Cruz:
The Stop TSP ESG Act would prevent the TSP from allowing woke fund managers from using their voting power to advance a far-left agenda. This bill will not only empower federal retirees and protect their investments, but will also enhance the shareholder power of individual investors who would otherwise get outvoted by large institutional investors like BlackRock.
What Is in the Stop ESG Bill?
The bill itself is very short. It makes one change in existing legislation. If this change were to be enacted, the law would read: “The Board, a qualified professional asset manager, other Government agencies, the Executive Director, an employee, a Member, a former employee, and a former Member may not exercise voting rights associated with the ownership of securities by the Thrift Savings Fund.”
The only change is adding the wording “a qualified professional asset manager” to the law.
Senator Cruz described the current legislation as allowing BlackRock to put a priority on “its political agenda over the interests of employees and retirees who are seeking to maximize their return on investment.” He wrote that BlackRock uses:
[I]ts position as the fund manager to vote in shareholder meetings and to force publicly traded companies to adopt ESG and DEI policies, even if doing so adversely affects investor value. As such, BlackRock prioritizes its political agenda over the interests of employees and retirees who are seeking to maximize their return on investment.
The change would deny BlackRock, as “a qualified professional asset manager” of the TSP, the ability to use the large amount of TSP assets from voting as it sees fit on issues involving companies included in the TSP.
Senator Eric Schmidt (R-TX) is a co-sponsor of the bill introduced by Senator Cruz. The bill introduced in the House by Congressman Buck has 17 co-sponsors. While the “Stop TSP ESG Act” indicates concerns about this issue among Republicans, and may pass in the House, it is unlikely the bill will pass in the Senate as it is unlikely to gain support from Democrats.